Short-term Trading Surges in Market Pressured by Interest Rates

Apartment, Villa, and Other Collective Buildings

Increase in Sellers Within One Year

[Asia Economy Reporter Kim Min-young] The number of 'short-term' transactions, where collective buildings such as apartments and officetels are sold within one year of purchase, is increasing. This appears to be due to growing pressure on buyers who purchased collective buildings with loans to dispose of them amid the recent sharp rise in interest rates. Experts predict that as macroeconomic conditions worsen, including inflation-driven interest rate hikes and economic slowdown, the number of sellers choosing to dispose rather than hold long-term will continue to rise.

According to an analysis by Zigbang on the number of ownership transfers due to sales over the past three years since 2019, the proportion of collective buildings sold within one year of ownership nationwide was 9.92% in the second quarter. This means that one out of ten sellers disposed of their collective building within less than a year of purchase. The proportion of sellers disposing within one year has been on the rise, recording 7.48% in the fourth quarter of last year and 8.49% in the first quarter of this year.

The proportion of sellers disposing within more than one year but less than two years, and those disposing within more than two years but less than three years, had been declining but started to increase again after the third quarter of last year. In the second quarter of this year, the proportion of sellers nationwide holding collective buildings for less than three years reached 26.13%, the highest level in the past three years. Types of collective buildings include apartments, multi-family houses, villas, row houses, officetels, commercial buildings, and commercial-type factories.

The proportion of short-term holding sellers of collective buildings in the Seoul area has also increased since the fourth quarter of last year. Although lower than three years ago, after declining during the COVID-19 pandemic, this rate rose to 24.16% in the second quarter of this year, the highest level since the second quarter of 2020.

The increase in the proportion of short-term holders selling appears to be influenced by domestic and international real estate market conditions and loan burdens. Looking at the distribution of household loan amounts by interest rate brackets following the base rate hikes, the share of loans in higher interest rate brackets has increased. In the first quarter of last year, a year ago, loans with interest rates below 3% accounted for 78.6%, but now loans with interest rates above 3% account for 83.3%, increasing financial cost burdens.

Ham Young-jin, head of Zigbang Big Data Lab, explained, "Looking at the trend in changes in mortgage loan amounts compared to the previous quarter, the increase in loan amounts has significantly expanded since the third quarter of 2020. Collective buildings purchased for investment purposes using low-interest loans at that time are now under increased pressure to dispose of due to the recent sharp rise in short-term interest rates."

Meanwhile, the volume of collective building sales transactions has been declining since the fourth quarter of 2020. Sales transactions in the first and second quarters of this year were 255,089 and 248,633 respectively, down to about 60% of the 422,042 transactions in the fourth quarter of 2020, which was the most active period in the past three years. Collective building sales transactions reached 400,000 units until the first quarter of last year but dropped to 320,000 units in the fourth quarter of last year and have since fallen to the 200,000 range this year. With worsening macroeconomic conditions such as inflation and economic slowdown, the real estate market is expected to find it difficult to regain momentum.

Ham Lab Chief predicted, "If the backlog of listings continues and timely sales become difficult, the costs and psychological burdens of holding real estate will increase, leading to a continuous rise in sellers choosing disposal over long-term holding."

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