Housing Subscription Market Plagued by Double Burden of High Interest Rates and High Sale Prices

Apartment Sale Prices This Year Up 18.4% from Last Year
Variable Mortgage Rates at 4-7%, Still a Burden

The subscription market is rapidly cooling as it faces a double burden of high pre-sale prices and high interest rates. Additionally, with growing concerns about a domestic economic recession increasing uncertainty in the real estate market, buyer sentiment is expected to contract further. Given the likelihood that the high interest rate trend will continue for the time being and that there are no signs of inflation easing?driven by factors pushing up pre-sale prices such as rising labor and raw material costs?the upward trend in pre-sale prices is expected to persist next year as well.

[Image source=Yonhap News]

According to Real Estate R114 on the 10th, as of the 7th, the average apartment pre-sale price this year was 18.01 million KRW per 3.3㎡, an increase of about 2.8 million KRW (18.4%) compared to 15.21 million KRW last year. For an 84㎡ exclusive-use type, this means an average increase of more than 95 million KRW per unit. This is the third highest record since 2000, following 2003 (19.9%) and 2007 (23.3%), and the highest in 16 years.

Experts expect pre-sale prices to continue rising. According to the industry, cement prices rose about 14% last year and increased by an additional 6% in November this year. Ready-mixed concrete also rose about 19% compared to the third quarter. Industrial electricity rates have also increased. As raw material prices, which affect construction costs?a key factor in calculating apartment pre-sale prices?continue to rise, pre-sale prices are structurally bound to increase.

The prolonged high interest rate environment is another factor freezing the subscription market. The variable interest rates on mortgage loans from the five major banks are currently between 4% and 7% per annum. The mixed (fixed) mortgage rates from these banks range from 3% to 6% per annum, slightly lower than last month but still representing a higher financial cost burden compared to last year. Furthermore, growing concerns about a domestic economic downturn have increased uncertainty in the real estate market.

Subscription enthusiasm is also waning. Analyzing subscription data from Subscription Home, real estate research firm Realtoday reported that the lowest average winning score for apartment subscriptions in the metropolitan area in November was 24.8 points. In October, it was 37.9 points, marking a drop of 13.1 points in just one month.

Given this situation, many housing developers have become pessimistic about pre-sale prospects. According to the Korea Housing Industry Research Institute (KHIRI), the nationwide apartment pre-sale outlook index for December recorded 61.5, down 8.9 points from 70.4 in the previous month. This index exceeded 100 in August at 100.8 but fell below 100 in September and has been declining for four consecutive months.

The apartment pre-sale outlook index is a comprehensive indicator from the supplier’s perspective on the pre-sale environment; a value below 100 indicates that negative outlooks on the pre-sale market outweigh positive ones.

KHIRI analyzed, "Following the rise in pre-sale prices due to high interest rates and increased construction costs, combined with growing uncertainty in the real estate market, both construction companies and prospective buyers have adopted a passive stance, leading to stagnation in the apartment pre-sale market."

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