Real Estate Expert: "Yeongkkeuljok Must Endure House Price Decline... No Other Way"

Professor Kim Kyung-min: "The US will not cut the benchmark interest rate at once... It will be difficult for us too"
"Hard to switch real estate... Need to find ways to reduce interest burden"

An apartment complex viewed from Lotte World Tower Seoul Sky in Songpa-gu, Seoul. The photo is not related to the specific content of the article. Photo by Yonhap News.

[Asia Economy Reporter Yoon Seul-gi] Following the US interest rate hikes, domestic interest rates are also rising sharply. As a result, only 'urgent sale properties' priced several hundred million won below previous transaction prices are being sold, causing the real estate market to freeze rapidly. In this context, a real estate expert said, "Those who have taken out loans by borrowing to the maximum (Yeongkkeul) must endure no matter what," adding, "There is no other way."

Professor Kim Kyung-min of the Graduate School of Environmental Studies at Seoul National University appeared on CBS Radio's 'Park Jae-hong's One Match' on the evening of the 26th and advised, "It is very difficult to switch real estate now," and added, "Instead, you should work hard to be able to bear the interest burden."

Professor Kim explained, "The US has raised the benchmark interest rate by 0.75 percentage points three times in a row, and plans to raise it by 0.75 percentage points in November, and in December, instead of a giant step (a 0.75 percentage point hike at once), it will take a big step (a 0.5 percentage point hike at once)." He said, "This means that in the next two months, whether it is a giant step or a big step, the rate will increase by at least 1.25 to 1.5 percentage points."

He continued, "The US will never lower the benchmark interest rate all at once just because inflation has eased," and predicted, "After raising it, they will maintain it for at least several months. That means it will be very difficult for us during that period as well."

Professor Kim explained that as the benchmark interest rate rises, real estate investment returns have decreased. He pointed out, "The benchmark interest rate is linked to the 10-year government bond yield," and said, "Real estate investment returns should be higher than the 10-year government bond yield at least, but now the government bond yield is very high at 4.6%."

He further explained, "Generally, the investment return in real estate is calculated as the annual rent (numerator) divided by the price (denominator)," adding, "Because the (rental) contract is fixed, the numerator does not change for 2 or 4 years. Therefore, the denominator moves, and the price must fall for the investment return to rise."

Regarding the reasonable timing for purchasing real estate, Professor Kim said, "First, it will be important when the US interest rate hikes stop and start to decline even slightly, and second, the difference between the asking price and the previous transaction price." He explained, "In a rising market, if a property was previously sold for 1 billion won and I am the seller, I would list it for 1.1 billion won. So in a rising market, the asking price is higher than the transaction price, but in a falling market, the asking price is lower than the transaction price, and now it is overwhelmingly lower. Therefore, the point when this spread breaks the stagnation and starts to rise is important."

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