[2022 Economic Outlook Survey] "Real Estate Prices Will Not Fall Next Year Either," 76%

Policies for Market Stabilization Highlight 'Supply Expansion and Loan Regulation Relaxation'
Long-term Upward Trend Expected to Slow Down

Housing Demand Shrinks Due to Interest Rate Hikes

[Sejong=Asia Economy Reporter Joo Sang-don] More than seven out of ten economic experts predict that real estate prices in the Seoul metropolitan area, including Seoul, will not decline next year. Nearly three out of ten expect an additional upward trend. This is an assessment that the Moon Jae-in administration's efforts to curb housing prices have effectively failed.

On the 1st, Asia Economy conducted a '2022 Economic Outlook' survey targeting 35 domestic economic experts from academia, research institutes, and the financial sector. Regarding the 'Seoul and metropolitan area real estate market outlook,' 76.5% of respondents predicted that 'real estate prices will not fall' next year. Half of the respondents (50%) expected the real estate market to maintain its current level next year, while 26.5% anticipated an 'additional upward trend.' Only 23.5% responded that the market would 'turn downward.'

This expectation appears to reflect the trend of rising housing prices in Seoul and the metropolitan area. According to the Korea Real Estate Board's Real Estate Statistical Information System, the average housing sale price in Seoul surged by 170.85 million KRW (24.3%) from 703.27 million KRW in December last year to 874.12 million KRW in October this year, within 10 months. This is about four times faster than the 6.1% annual increase rate in 2020.

However, experts expect the upward trend to slow down in the long term. If the base interest rate hike trend continues next year as it did this year, it could increase debt repayment burdens and reduce housing demand. While the upward trend may continue in the short term, it is expected to gradually slow down in the mid-to-long term due to rising interest rates and expanded supply in the metropolitan area.

When asked about 'policies needed to stabilize the real estate market' in an open-ended question, experts cited active supply expansion and loan regulation relaxation for genuine buyers. Many opinions emphasized increasing housing supply focused on selected genuine buyers such as young people and households without homes, while strongly pursuing policies to suppress speculative demand. Respondents also mentioned the need for △reconsideration of reconstruction and redevelopment regulations to expand private-sector-led supply △suppression of real estate market disturbances △gradual increase of holding taxes △reduction of transaction taxes such as capital gains tax for market stabilization. As an indirect solution, some suggested easing regulations related to non-apartment housing such as officetels or urban-type residential housing to alleviate housing demand and smoothly advancing existing new town plans in the mid-to-long term.

Additionally, many agreed on the importance of finance and taxation roles in stabilizing real estate prices. One respondent said, "It is a time when financial and tax policies to reduce speculative demand are more necessary," while another said, "There is a need to partially relax Loan-to-Value (LTV) and Debt Service Ratio (DSR) regulations for genuine buyers without homes." A respondent working in the financial industry suggested, "If market stability is confirmed through aggressive supply expansion, it will be necessary to gradually ease direct regulations on mortgage loans to relieve inconveniences for genuine buyers."

Criticism that the Moon Jae-in administration's real estate policies rather increased market confusion was also strong. One respondent pointed out, "Market suppression policies such as regulations, supply control, and increased real estate-related taxes have rather confused the market," adding, "Allowing market functions through private autonomy may cause short-term price increases and side effects, but in the mid-to-long term, balance can be restored." Another respondent emphasized, "Restoring consistency and reliability in real estate policies (finance, supply, permits) is a priority," and added, "Policies should be designed with sustainability and incentive compatibility."

Editor's Note

Kang Moon-sung, Professor, Department of International Studies, Korea University; Kang Sung-jin, Professor, Department of Economics, Korea University; Kwon Kwang-seok, CEO, Woori Bank; Kwon Jun-hak, CEO, NH Nonghyup Bank; Kwon Tae-shin, Vice Chairman, Federation of Korean Industries; Kim Ki-moon, Chairman, Korea Federation of Small and Medium Business; Kim Sang-chul, CEO, Seoul Welfare Foundation and Professor, Department of Social Welfare, Hansei University; Kim Jung-tae, Chairman, Hana Financial Group; Kim Jong-sook, President, Korean Association of Women Economists; Kim Jin-il, Professor, Department of Economics, Korea University; Kim Heung-jong, President, Korea Institute for International Economic Policy (KIEP); Park Sung-ho, CEO, Hana Bank; Park Cheon-il, Director, International Trade and Commerce Research Institute, Korea International Trade Association; Sung Myung-jae, President, Korean Association of Public Finance and Professor, Department of Economics, Hongik University; Son Byung-hwan, CEO, NH Nonghyup Financial Group; Son Tae-seung, Chairman, Woori Financial Group; Song Ui-young, Professor, Department of Economics, Sogang University; Shin Kwan-ho, Professor, Department of Economics, Korea University; Yoo Jong-il, Dean, KDI School of Public Policy and Management; Yoon Jong-kyu, Chairman, KB Financial Group; Lee Geun, Vice Chairman, National Economic Advisory Council; Lee Dong-geun, Vice Chairman, Korea Employers Federation; Lee In-sil, Professor, Graduate School of Economics, Sogang University; Lee In-ho, Professor, Department of Economics, Seoul National University; Lee Jong-hwa, Professor, Department of Economics, Korea University; Lim Jin, Director, SGI, Korea Chamber of Commerce and Industry; Jang Se-jin, Director, Seoul Institute for Social Economy; Jeon Kwang-woo, Chairman, World Economy Research Institute; Jung Se-eun, Professor, Department of Economics, Chungnam National University; Cho Yong-byeong, Chairman, Shinhan Financial Group; Joo Hyun, President, Korea Institute for Industrial Economics and Trade; Jin Ok-dong, CEO, Shinhan Bank; Heo Yong-seok, President, Hyundai Research Institute; Heo In, CEO, KB Kookmin Bank; Hong Jang-pyo, President, Korea Development Institute (KDI)

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