Transactions Plummet, Interest Rates Soar... Sleepless Nights for Seoul Exodus Debt-Ridden Borrowers

On the morning of the 10th, when the emergency fine dust reduction measures were implemented in the Incheon area, Songdo International City, viewed near Dongchun Tunnel in Yeonsu-gu, Incheon, appears faint due to fine dust.

Mr. A, in his 30s, paid off his jeonse lease last March and purchased an apartment in Yeonsu-gu, Incheon, for 520 million KRW. The total loans, including a mortgage and his wife's personal loan, amounted to 320 million KRW. Considering their dual-income household, they took on the loans aggressively, but endured as they saw nearly monthly record-high prices in the nearby complexes after the purchase. However, recently, transaction alerts have become sparse, and declining sales have started to appear. With the monthly principal and interest repayment rising from the 800,000 KRW range to nearly 1 million KRW due to interest rate hikes, he has begun losing sleep at night.

As the real estate transaction freeze and interest rate hikes take full effect, the 2030 generation of "young all-in" buyers who have driven the market's panic buying are facing deep concerns. There are growing warnings that if a major downturn materializes, the "young all-in" buyers in Gyeonggi Province and Incheon could be particularly at risk. Gyeonggi and Incheon were the regions with the highest apartment price increases last year. This was due to the surge in Seoul apartment prices in 2020, which drove many young all-in buyers to these areas, causing rapid price hikes.

Throughout last year, as housing prices rose, their bold all-in investments seemed to be successful. However, recent price declines and the resulting drop in asset values have made their futures uncertain within just a year. The mortgage interest rates at commercial banks were around 3-4% as of August last year. Now, they are approaching the 6% fixed-rate level. With the ongoing trend of rate hikes, forecasts suggest rates could reach 7% within the year. Industry estimates indicate that a 1 percentage point increase in loan interest rates last year raised the average borrower's interest burden by over 640,000 KRW per month.

While the burden of principal and interest repayments is increasing, asset values are actually declining. In the first week of February, the weekly apartment price growth rate in the Seoul metropolitan area recorded -0.02%, marking the first decline in 2 years and 4 months since July 2019. According to KB statistics (as of February 7), 7 out of the top 10 regions with the highest weekly apartment price declines nationwide were in the Gyeonggi area. The accumulating inventory each week signals a prolonged downward trend. The number of apartment listings in Incheon surged by 64.1%, from about 17,600 in August last year to approximately 29,000 in February, just six months later. In Gyeonggi Province, listings increased by about 49%, from 89,200 to 133,000 during the same period. The days on market have also steadily increased. Days on market refers to the period from when a property is listed online until it is sold or removed, indicating that inventory is not being absorbed. According to the real estate platform Real Estate Jiin, the average days on market for apartments in Gyeonggi Province, which was around 22-23 days in the second half of last year, rose to 28.8 days in February. In Incheon, it increased from 20-22 days to 28.7 days in February, both rising by about a week.

Given the likelihood of a mild rise or slight decline in housing prices rather than the explosive growth seen last year, experts suggest the need to readjust repayment plans, such as reducing loan ratios. Seo Jin-hyung, president of the Korea Real Estate Society and professor at Gyeongin Women's University, said, "If the downturn fully materializes, its impact will be felt more strongly in the outskirts than in Seoul." He added, "Since further base rate hikes are expected, it is necessary to minimize interest burdens as much as possible."

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