Among 2 Sales, 1 Price Drop... Ministry of Land, Infrastructure and Transport: "Stable Trend Strengthened Due to Interest Rate Hikes"

US Interest Rate Hike Begins, Additional Increase Likely in Korea
Recent Real Transaction Prices Clearly Stabilizing with Decline
In Seoul, 1 in 2 Sales Transactions Show Real Price Drop

[Image source=Yonhap News]

Regarding the Bank of Korea's decision on the 14th to raise the base interest rate by 0.25 percentage points to 1.25%, the Ministry of Land, Infrastructure and Transport emphasized that "the medium- to long-term downward stabilization trend in the market is expected to become more solid."

In particular, the Ministry explained that half of the apartment sales transactions in Seoul showed a decrease in actual transaction prices, and the proportion of falling prices in jeonse (long-term lease) transactions reached 40%, indicating that the housing price stabilization trend is gaining momentum.

On the same day, the Ministry released a report titled 'Housing Market Trends and Outlook Following Interest Rate Hikes,' stating that "the housing market stabilization is becoming more evident, as actual transaction prices have started to decline."

The Ministry noted, "Considering the normalization of monetary policy, the Bank of Korea held a Monetary Policy Committee meeting today and decided to raise the base interest rate. Major foreign countries such as the United Kingdom and New Zealand have already increased their policy rates. The U.S. Federal Reserve began raising rates in March and is expected to raise rates 6 to 8 times through 2023, so based on past experience, additional base rate hikes are anticipated in South Korea as well."

It added, "Considering the impact of interest rate levels on housing prices, the full-scale interest rate hike cycle is expected to significantly contribute to housing market stabilization."

The Ministry also forecasted that supply conditions will further improve this year, as housing permits, pre-sales, and completions indicators are also improving.

The Ministry explained, "Due to ongoing efforts to expand supply, permit approvals already turned to an increasing trend last year, with Seoul's approvals more than doubling. The increasing trend in permits is expected to continue in 2022, indicating very favorable medium- to long-term permit conditions."

According to the Ministry, the volume of pre-sale units this year is expected to be around 390,000 households, about 10% higher than the previous year. Including 70,000 pre-sale units, which is double last year's amount, a total of over 460,000 households will be supplied, exceeding the usual annual supply by more than 100,000 units.

The Ministry also predicted that housing price stabilization will become more distinct, as the population?a major variable determining actual housing demand?is expected to decline in the long term.

The Ministry analyzed, "The working-age population aged 15 to 64, which accounts for many homebuyers, is expected to decrease by 360,000 annually over the next 10 years, totaling a reduction of 8.76 million by 2040."

Minister of Land, Infrastructure and Transport, Noh Hyung-wook, said, "Although there may be temporary price fluctuations by region and period, the triple downward pressure from liquidity, supply, and population?the three core short-, medium-, and long-term variables of the housing market?is strengthening, and housing price stabilization will become more solid in the medium to long term. We will concentrate government-wide efforts on managing liquidity such as household loans and implementing supply measures to expedite the stabilization trend."

According to the Korea Real Estate Board on the same day, the apartment sales actual transaction price index nationwide, in the metropolitan area, and in Seoul all turned downward in November last year. In Seoul, actual transaction prices fell in all areas except the downtown area, and major regions such as Gyeonggi-do, Busan, Daejeon, and Daegu also began to show a downward trend.

The nationwide index change rate was -1.37 percentage points, marking the largest drop since October 2008 (-1.52 percentage points) during the financial crisis.

In particular, the proportion of transactions with prices lower than the previous transaction rose from the lowest points in August for sales and September for jeonse last year, reaching the highest level in December.

In Seoul, in December last year, 1 out of 2 apartment sales transactions (50.6%) were conducted at prices lower than the previous transaction, and the proportion of falling prices in jeonse transactions approached 40%.

This content was produced with the assistance of AI translation services.