Jeonse Prices Fall by Largest Margin in 20 Years... "Downward Pressure to Persist for a While"

BNK Economic Research Institute, affiliated with BNK Financial Group, released a research report titled ‘Current Status of the Construction and Real Estate Market and Implications for the Regional Economy’ on the 8th.

According to the report, the domestic building construction area in the fourth quarter of 2022 decreased by 37.8% compared to the same period last year, marking the largest decline since related statistics began in 2000.

By economic region, Honam region saw the largest decrease at -55.1%, followed by Daegyeong region at -53.0%, Seoul Capital Area at -40.6%, Chungcheong region at -25.3%, Jeju region at -20.2%, Dongnam region at -17.6%, and Gangwon region at -14.0%.

Construction order amounts also decreased by 15.8% during the same period, with the largest declines in Daegyeong region at -49.7%, Gangwon region at -43.8%, and Honam region at -38.7%.

However, in the Dongnam region, civil engineering construction orders increased significantly, making it the only economic region to record an increase in order amounts, reaching 36.0%.

Table of Construction Start Area Growth Rates by Economic Zone (left), Graph of Construction Start Area Growth Rates by Type in the Southeast Region.

National apartment sale prices fell by 4.6% in the fourth quarter of 2022, marking the first negative growth in three years since 2019, and apartment transaction volumes also decreased by 54.3% during the same period, continuing an eight-quarter consecutive decline.

Apartment jeonse (long-term lease) prices dropped by 5.2% during the same period, recording the largest decline since statistics began in 2003, while monthly rent increased by 1.9%, maintaining an upward trend.

The number of unsold apartments increased to 75,359 units as of January 2023. Over the past year, it surged by 50,397 units, marking the first time in 14 years since 2008 (53,345 units) that the annual increase in unsold units exceeded 50,000.

The commercial real estate market also showed sluggish performance, with retail rental prices at their lowest and vacancy rates at their highest in the past 10 years.

In the fourth quarter of 2022, the domestic retail rental price index stood at 99.7 points, the lowest since the index was first published in 2013, while retail vacancy rates rose to 13.2%, the highest level since 2013.

The institute forecasts that downward pressure on regional construction and real estate markets will continue for the time being, citing rising construction costs, delays in groundbreaking, and housing supply-demand instability as factors likely to hinder market vitality recovery.

Table of Apartment Sale Price Increase Rates by Economic Zone (left) · Graph of Apartment Sale Transaction Volume in the Southeast Region.

In particular, the report pointed out that if instability in real estate PF (Project Financing) becomes visible, it could cause a primary shock to secondary financial institutions and small to medium-sized construction companies, as well as a secondary shock to regional financial markets and the real economy due to weakened investment and consumer sentiment.

In the Dongnam region, the ratio of construction area started compared to permits issued in the fourth quarter of 2022 was 44.4%, significantly below the national average of 54.1%, and the lowest among economic regions, raising concerns about deteriorating profitability and soundness in the construction industry due to construction delays.

It also pointed out that housing supply greatly exceeding housing demand is a factor delaying market recovery. In 2022, the Dongnam region supplied 45,479 housing units, while housing demand was 30,087 units, resulting in an oversupply of more than 15,000 units.

Lee Geul, a research fellow at BNK Economic Research Institute, said, “It is a crucial time to promptly respond and early block the spread of risks,” adding, “The government should strengthen support such as deregulation, expanding PF guarantee limits, and liquidity supply, while construction companies and financial institutions should make various self-help efforts such as recalculating sale prices and securing funds.”

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