Booyuk Yeon "Apartment Bubbles Are Large in Gangnam 4 Districts, Mayongseong, and Yangcheon-gu"
by Oh Hyungil
Published 02 Feb.2020 19:46(KST)
[Asia Economy Reporter Oh Hyung-gil] It has been pointed out that apartment prices in 18 districts of Seoul, including the Gangnam 4 districts?Seocho, Gangnam, Songpa, and Gangdong?are highly likely to be in a bubble.
On the 2nd, the Korea Insurance Research Institute analyzed monthly data of apartment sale price indices and jeonse price indices by 25 districts in Seoul, compiled by Statistics Korea from November 2003, in its report titled "Review of Apartment Price Bubble Possibility by Region in Seoul."
The report analyzed the possibility of a bubble in Seoul apartment prices based on criteria such as whether prices were irrational, whether irrational prices persisted for more than a year, and whether price volatility expanded due to expectation sentiment during that period.
According to the results, as of October last year, seven districts?Jongno-gu, Jungnang-gu, Gangbuk-gu, Dobong-gu, Guro-gu, Geumcheon-gu, and Gwanak-gu?showed a low possibility of an apartment price bubble, whereas 18 districts, including the Gangnam 4 districts, showed a high possibility of a bubble.
The regions where the real estate price bubble first progressed were Gangnam-gu and Yongsan-gu (April 2017). Subsequently, it spread to Seocho, Songpa, and Yangcheon-gu (June 2017), Yeongdeungpo-gu (July 2017), and Gangdong-gu (September 2017). From September of the same year, the average apartment price in Seoul entered bubble levels.
Additionally, when reviewing the possibility of a Seoul apartment price bubble before the 2008 global financial crisis, the bubble period for Seoul apartment prices was found to be 3 years and 4 months, from May 2006 to August 2009. In particular, the bubble period in Gangnam-gu lasted from before November 2005 to February 2009.
Senior Research Fellow Yoon Sung-hoon of the Korea Insurance Research Institute stated, "At that time, the apartment price bubble started first in Gangnam-gu and also deflated first in Gangnam-gu," and estimated, "The main factor that resolved the bubble was likely the shock caused by the global financial crisis."
He added, "As of October 2019, the Seoul apartment price bubble has lasted for more than 2 years and 2 months, and the '12.16 Measures' will have a significant impact on the three Gangnam districts where high-priced apartments are concentrated," and predicted, "The government's firm will to stabilize apartment prices will gradually reduce the Seoul apartment price bubble."
However, he also noted that low interest rates and rising housing prices in major countries could act as negative variables in resolving the bubble.
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