[8.16 Supply Measures] Housing Supply Amid Transaction Freeze, Concerns Over Widening Decline in Seoul and Metropolitan Area

Additional Supply of 350,000 Housing Units in Seoul and the Metropolitan Area
Short-term Downward Pressure, Long-term Housing Stabilization Expected

[Asia Economy Reporter Cha Wanyong] Amid an extremely sluggish housing sales market due to interest rate hikes, concerns are emerging that the Yoon Seok-yeol administration's large-scale real estate supply plan will further increase downward pressure on housing prices in Seoul and the metropolitan area in the short term. However, some experts predict that in the long term, it will play a key role in stabilizing housing prices.

The Ministry of Land, Infrastructure and Transport announced on the 16th the plan to supply 2.7 million housing units over the next five years through the "Plan for Realizing National Housing Stability," which is an increase of 200,000 units from the existing 2.5 million units. Although detailed plans such as additional supply locations will be announced sequentially starting in September, the main focus is on expanding supply in Seoul and the metropolitan area, where supply is insufficient. An additional 110,000 units will be added through redevelopment projects, and a total of 350,000 units will be additionally supplied, including 240,000 units through public land projects such as the 3rd New Town development.

Since specific details such as supply areas and timing have not yet been released, it is predicted that there will be no immediate significant impact on the market. However, large-scale housing supply in the metropolitan area is likely to exert downward pressure on housing prices over the long term.

According to the Seoul Real Estate Information Plaza, apartment sales transactions in Seoul last month were 448 cases, the lowest monthly sales volume since statistics began in January 2006. The contraction in transaction volume is not limited to Seoul apartments. According to the Ministry of Land, Infrastructure and Transport, nationwide housing sales transactions in the first half of this year remained at 310,000 units, also the lowest half-yearly transaction volume since 2006.

The recent severe contraction in transaction volume has led to a decline in housing prices. According to the monthly time series data on housing price trends from KB Kookmin Bank, apartment prices in the metropolitan area fell by 0.12% last month, the largest drop since a 0.11% decline in June 2019.

As of the 1st, the weekly Seoul apartment sales supply-demand index from the Korea Real Estate Board was 84.6, the lowest level since July 8, 2019, when it was 83.2. During the same period, the nationwide apartment sales supply-demand index was 90.5, the lowest since November 18, 2019, when it was 90.3. A sales supply-demand index below 100 means there are more sellers than buyers.

The housing transaction cliff and the resulting price decline are expected to continue for the time being, as the Bank of Korea has announced it will continue to raise the base interest rate until the end of this year. There are also forecasts that it will contribute to housing price stabilization in the long term.

Lee Eun-hyung, a research fellow at the Korea Construction Policy Institute, said, "Considering the policy direction from the last presidential election pledge to expand private-led housing supply, this is a necessary issue and will greatly help stabilize housing prices. However, the focus should be on the policy direction, specific implementation plans, and accumulation of successful cases rather than the figure of 2.7 million units."

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