Soaring Interest Rates... Growing Concerns Over 'Transaction Cliff and Price Decline' in the Housing Market

Apartment view around Seoul./Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Ryu Tae-min] The Bank of Korea has implemented a ‘big step’ by raising the base interest rate by 0.5 percentage points at once for the first time in three months, increasing negative outlooks concerned about a transaction slump and price decline in the real estate market.

On the 12th, Kim Hyo-seon, Senior Real Estate Advisor at NH Nonghyup Bank, said, “As macroeconomic conditions such as economic instability greatly affect the real estate market, the rapid rise in interest rates is likely to increase fear,” adding, “Loan interest rates are also rising faster than expected, which is increasing the interest burden on participants in the real estate market.”

In fact, as interest rates have risen rapidly so far, the transaction cliff in the housing market has deepened further. According to the Seoul Real Estate Information Plaza, the number of apartment transactions in Seoul from January to August this year was 9,648, only 25.9% of the same period last year (37,268 transactions), which is one-quarter of that amount. This is the lowest since the actual transaction price survey began in 2006.

As the market freezes, prices are also declining. According to statistics from the Korea Real Estate Board, apartment prices in Seoul have fallen for 19 consecutive weeks. Moreover, as the number of urgent sale listings increases in the market, the rate of decline is growing.

With the government’s sluggish progress on tax relief measures such as the comprehensive real estate tax, sellers trying to sell their homes within the capital gains tax exemption period for multiple homeowners are expected to flood the market by the end of this year, further increasing urgent sale listings. Additionally, the recent interest rate hike is expected to impact the jeonse (long-term lease) market, likely leading to a simultaneous slump in both the sales and rental markets.

A representative from real estate agency A in Garak-dong, Songpa-gu, Seoul, said, “While homeowners continue to put properties on the market, there is no demand from buyers, so no transactions are taking place at all,” adding, “Despite it being the autumn moving season, even jeonse transactions are sluggish, causing significant damage.”

Meanwhile, experts view the interest rate hike as a negative factor for the pre-sale market as well. Yeokyung-hee, Senior Researcher at Real Estate R114, said, “Recently, the subscription market has seen an increase in under-subscription, unsold, and uncontracted units, and the additional interest rate hike inevitably burdens those seeking to buy homes through subscription,” adding, “Concerns about unsold units will grow not only in provincial areas but also in Seoul and the metropolitan area.”

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