Apartment Prices Run Wild... Will the Exodus from Seoul Accelerate?

Photo by Asia Economy

The government has decided to actively reflect the increase in construction material costs in construction expenses along with revising the price ceiling system for pre-sale prices, making a comprehensive rise in pre-sale prices inevitable in the future. Amid the ongoing exodus from Seoul due to skyrocketing real estate prices, concerns are emerging that this trend may intensify further.

According to the 'Private Apartment Pre-sale Price' trend data released recently by the Housing and Urban Guarantee Corporation (HUG) as of the end of April 2022, the average pre-sale price per 3.3㎡ in Seoul recorded 32,244,300 KRW. This marks a 14.60% increase compared to 28,135,800 KRW in the same month last year.

The problem is that the rise in pre-sale prices is expected to continue. The Ministry of Land, Infrastructure and Transport and HUG are planning to further revise the high pre-sale price review system within regulated areas and are discussing detailed measures. The construction industry has continuously demanded the abolition of the high pre-sale price review system, arguing that HUG's control over pre-sale prices acts as an obstacle to expanding pre-sales.

The government plans to allow costs arising from redevelopment projects, such as relocation expenses for reconstruction associations, project financing interest, business compensation, and eviction lawsuit costs, to be reflected in general pre-sale prices under the current revision plan of the price ceiling system. Additionally, measures to reflect future development profits in land price appraisals for site costs are also under consideration.

Currently, the price ceiling system applies to 322 buildings in 13 districts including Gangnam in Seoul and three cities in Gyeonggi Province (Hanam, Gwangmyeong, Gwacheon). The Ministry of Land, Infrastructure and Transport is also reviewing whether to further increase the basic construction cost under the price ceiling system by monitoring fluctuations in raw material prices such as ready-mixed concrete. An improvement plan to further enhance HUG's high pre-sale price review system and actively reflect the rise in construction material costs in construction expenses will also be announced by the end of this month.

Experts believe that as the government moves to expand supply to ensure the smooth achievement of the '2.5 million housing units + α (alpha)' plan to be announced in August, a comprehensive price increase is inevitable as the government begins to realize pre-sale prices.

The housing industry expects that if all the government’s proposed system improvements are implemented, the pre-sale prices of apartments subject to the price ceiling system, currently at 50-60% of surrounding market prices, will rise to 70-80%.

Based on Seoul standards, if the pre-sale prices of apartments under the price ceiling system, currently at 50-60% of market prices, increase, it is generally predicted in the industry that surpassing 40 million KRW per 3.3㎡ will be only a matter of time.

The average pre-sale price of apartments in Seoul has already exceeded 30 million KRW per 3.3㎡, prompting continued movement toward metropolitan areas with easier access to Seoul.

According to the '2021 Population Movement Statistics' released by Statistics Korea, 567,366 people moved out of Seoul to other cities last year, exceeding the number of people moving into Seoul (461,123) by 106,243. This is the highest figure since 2018 (110,230).

Among the approximately 570,000 people who left Seoul, 63.8% (362,116 people) moved to Gyeonggi Province. The second largest number, 44,859 people, moved to Incheon. This indicates that many people still commute to Seoul for work while living in nearby areas.

An industry official said, "With soaring housing prices in Seoul across pre-sale, sales, and rental markets, many people appear to be moving from Seoul to nearby regions. The movement of real demand buyers is expected to continue for some time, mainly toward the metropolitan area, which offers relatively larger spaces, pleasant living environments, and transportation benefits."

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