Real Estate Market After Seol: Sales Transaction Cliff and Jeonse Instability...

Real estate agencies in downtown Seoul

Is the short-term adjustment due to recognition of a peak or the beginning of a trend decline? The real estate market, having reached an inflection point, is expected to continue a mixed trend for the time being. As policy risks increase ahead of the presidential election, cautious sentiment toward the real estate market is deepening, while the rental market is also likely to experience short-term fluctuations during the spring moving season. Amid growing anxiety, especially among young people who attempted to buy homes through so-called ‘Yeongkkeul’ (borrowing to the maximum), it is anticipated that mid-to-low-priced housing, primarily purchased by those with weaker purchasing power, will face greater downward pressure. However, demand for high-priced homes, prime areas in Seoul, and large-sized units remains steady, suggesting that market polarization will deepen.

◆‘Yeongkkeul’ Small Apartments Lead the Downtrend... Polarization Accelerates = According to a synthesis of opinions and analyses from the real estate industry on the 28th, various indicators of the real estate market at the beginning of the year show a slight decline and cautious stance, and this trend is expected to continue for the time being. This is attributed to factors such as stringent household debt management measures that began last year tightening financial flows, interest rate hikes, fatigue from rapid short-term price increases, and policy uncertainties ahead of this year’s presidential and local elections.

Currently, the market is experiencing a significant transaction freeze. According to statistics from the Seoul Real Estate Information Plaza, apartment transaction volumes in Seoul from September to November last year recorded the lowest levels in 13 years since 2008. The December transaction volume, which has not yet been fully compiled, is also expected to set a record low. Due to the transaction freeze, Seoul apartment prices this week fell by 0.01% compared to last week, marking a decline for the first time in 20 months. Small apartments led the price decline across all apartments in Seoul. According to the Korea Real Estate Board, the sales price of small apartments with exclusive areas over 40㎡ and up to 60㎡ recorded -0.03% this week, the only size category showing a decline.

Kim Hyoseon, Senior Real Estate Specialist at NH Nonghyup Bank, said, "With policies suppressing demand such as housing-related taxes and loans maintained, this year has seen strengthened individual DSR (Debt Service Ratio) regulations and faster-than-expected interest rate hikes, leading to an increasing number of regions shifting from a transaction freeze to price declines." He added, "Although the 2030 generation accounted for the highest purchase proportion among all age groups last year, transaction volumes are expected to drop significantly this year."

◆Concerns Over Rental Market Instability After Lunar New Year = With the spring moving season underway, the rental market is expected to face some upward pressure. As buying demand weakens, buyer sentiment tends to falter, increasing the number of people switching to jeonse (long-term lease) contracts. Seasonal increases in jeonse demand during the spring moving season, coupled with the accelerating trend of ‘jeonse turning into monthly rent,’ are likely to reduce jeonse listings further and exacerbate market instability. Additionally, waiting demand for pre-subscription to the 3rd New Towns is accumulating. Seoul’s jeonse price ratio has already been rising for two consecutive months.

According to the KB Real Estate Monthly Housing Price Trends on the 26th, Seoul’s comprehensive jeonse price ratio rose from 57.95 in November last year to 57.97 in December, and further to 57.98 in January this year, showing an upward trend for two months. Ko Junseok, Adjunct Professor at Dongguk University Law School, said, "Jeonse prices have risen sharply in a short period, and due to the right to request contract renewal, jeonse listings have decreased." He added, "Due to the mismatch between supply and demand, instability in the rental market is likely to continue for the time being."

Meanwhile, there are opinions that the market situation could change after March, when the announced official prices for apartment complexes this year are released, potentially triggering a flood of urgent sales. The head of A Real Estate Agency in Deungchon-dong, Gangseo-gu, said, "According to the plan to realize official prices, official prices are rising by nearly 10%." He added, "As was the case last year, there is a high possibility of listings increasing due to the rise in tax burdens."

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