"Loan Regulations and New Coronavirus Double Whammy"... 'Gangnam 3 Districts' Halt Their Sprint

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[Asia Economy Reporter Yuri Kim] The housing market in Seoul's Gangnam area has frozen solid. Following the chill caused by last year's 'December 16 Real Estate Measures' and compounded by concerns over the novel coronavirus infection (Wuhan pneumonia), apartment prices in the three Gangnam districts (Gangnam, Seocho, and Songpa) have turned downward in private sector surveys, following the Korea Real Estate Board's data. The failure to sell the remaining reserved units of the mammoth Garak-dong 'Helio City' complex in Songpa-gu has heightened concerns over transaction stagnation and falling home prices.

According to Real Estate 114 on the 10th, apartment prices in Gangnam, Seocho, and Songpa districts all turned to decline as of the 7th. Songpa-gu saw the largest drop at -0.06% compared to the previous week, while Gangnam-gu and Seocho-gu recorded -0.04% and -0.03%, respectively. This marks the first time in over seven months since June 21 last year that apartment prices in the three Gangnam districts have simultaneously declined. In Gangnam-gu, prices turned downward after rising since April 26 last year, marking a decline after about nine months.

The market prices of major reconstruction complexes such as Jamsil Jugong 5 Complex in Songpa-gu and Daechi Eunma in Gangnam-gu fell by 5 million to 75 million KRW compared to the previous week. Likewise, prices of major large-scale apartment complexes like Banpo Acro River Park and Banpo Xi in Seocho-gu were adjusted downward by 25 million to 50 million KRW, leading the decline in apartment prices across the three Gangnam districts.

In the more conservative Korea Real Estate Board statistics, Gangnam area home prices had already turned downward as of the 20th of last month and have been widening their decline for three consecutive weeks. On the 20th of last month, the three Gangnam districts fell by 0.02%, 0.01%, and 0.01% respectively compared to the previous week, and on the 3rd, the declines deepened to -0.05%, -0.04%, and -0.05%. The explanation is that urgent sale properties appeared mainly in reconstruction complexes, which had attracted many investment demands, thus expanding the decline.

Since the December 16 real estate measures, loans for apartments exceeding 1.5 billion KRW have been completely banned, and a high-intensity investigation into the sources of funds has been announced, resulting in a disappearance of demand for high-priced apartments in the Gangnam area. Additionally, the persistent spread of the novel coronavirus has dampened market sentiment due to infection concerns, affecting the real estate market.

This situation was also revealed through the failure to sell the remaining reserved units of Helio City on the 7th. Reserved units are quantities left by the housing reconstruction maintenance association, the project implementer, as a buffer against omissions or errors in the shares of the allotment recipients (association members) and potential future lawsuits. Bidding for reserved units does not require a subscription savings account and allows multi-homeowners to participate, so competition is usually high. Previously, the association announced the bulk and individual sale of five reserved units in July and September last year, all of which were successfully sold. At the time of the bulk sale, the minimum bid amount totaled 7.74 billion KRW, but the winning bid was over 100 million KRW higher at 7.86 billion KRW. Individual sales were also popular, with minimum bid prices 100 to 200 million KRW higher than the bulk sale, yet all units were sold.

However, in the bidding for the remaining reserved units of two apartments and four commercial stores conducted until the 7th, not a single bidder appeared. The two apartments offered this time were unsold units from the five reserved units won in September last year, both highly popular 84㎡ exclusive-use units. The minimum bid prices ranged from 1.735 billion to 1.75 billion KRW. The failure to sell is attributed to weakened demand due to government regulations and the recent revelation that the 19th confirmed case of the novel coronavirus was a resident of this complex.

Lim Byung-chul, Senior Researcher at Real Estate 114, diagnosed, "Due to strong loan regulations, high-intensity investigations into various illegal transactions such as violations of the actual transaction law starting from the 21st, and the submission of documents to explain transaction funds such as funding plans announced from next month, buyer sentiment in the Gangnam area is expected to contract further."

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