"Loan Regulations May Only Have a Six-Month Effect... Home Prices Could Surge in Q4 Without Supply Measures"

Due to the impact of the June 27 loan regulations, housing prices in the Seoul metropolitan area have entered a period of stabilization. However, there are projections that home prices could surge rapidly in the fourth quarter if supply measures are not implemented. Analysts suggest that the market contraction resulting from the regulations will have only a temporary effect.

Participants are discussing at the 'Housing Supply Activation Plan' seminar held at the National Assembly Members' Office Building on the 5th. Provided by Housing Industry Research Institute

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On August 5, the Housing Industry Research Institute held a seminar on "Measures to Revitalize Housing Supply" at the National Assembly Members' Office Building in cooperation with the Korea Housing Association and the office of lawmaker Yeom Taeyoung (Democratic Party of Korea).

Kim Deokrae, Head of Housing Research at the Housing Industry Research Institute, who gave the presentation, stated, "Based on the experiences of the Roh Moo-hyun and Moon Jae-in administrations, the effect of this measure may last only three to six months." She added, "Unless rapid and strong supply measures are implemented?such as the swift supply of third-phase new towns, deregulation to promote private housing supply, and revitalization of urban renewal?the suppressed demand for home purchases is likely to rebound in the fourth quarter, driven by low interest rates and an economic recovery atmosphere, leading to another sharp increase in home prices."

There are also concerns that the upward trend in home prices, which began this year at major reconstruction sites in Seoul, could spread to nearby areas. Kim noted, "From the second half of the year, as reconstruction in first-phase new towns and popular areas of Seoul becomes more active, there is a possibility that the upward trend will spill over into neighboring regions." However, she predicted, "In large cities outside the metropolitan area, it will be difficult to break away from the current (sluggish) trend for the time being due to unsold housing inventory and local economic stagnation."

The Housing Industry Research Institute analyzed that, nationwide, home sale prices will fall by 0.2% this year, while prices in Seoul will rise by 3.0%, those in the metropolitan area by 1.5%, and prices in non-metropolitan regions will fall by 1.2%.

Jeonse prices are expected to see only a limited increase as loan requirements become more stringent. Kim explained, "This year, the number of new apartment units available for occupancy will decrease by more than 100,000 compared to the average of the past two to three years, and the increase in household formation due to rising home prices in the first half will continue to push up jeonse prices." However, she also said, "The increase will be limited as more households switch to monthly rent due to incidents of jeonse fraud and the 80% reduction in jeonse deposit return guarantees."

In contrast, monthly rents are expected to see a greater increase. This is because the supply of non-apartment housing has decreased by about 70% over last year and this year, and the conversion of jeonse to monthly rent has accelerated, leading to continued price increases mainly for multi-family homes and officetels. Kim stated, "Unless groundbreaking measures to expand the supply of non-apartment housing are introduced immediately, this trend is likely to continue for the time being."

As measures to revitalize private housing supply, the adjustment of the basic and standard construction costs was discussed. The need to rationalize excessive fees for bridge loans and project financing (PF) and to ease equity ratio requirements was also mentioned. There was also a call for prompt measures to address unsold housing in non-metropolitan areas. Regarding the revitalization of public housing supply, shortening the development period of public housing sites to speed up the supply of third-phase new towns was suggested.

For revitalizing urban renewal projects, alternatives such as refraining from excessive recoupment of development profits and adjusting construction costs for general sales were proposed. Currently, in regulated areas of Seoul, price controls on apartment pre-sales are causing cooperative members to bear an excessive share of construction costs for general buyers.

Kim said, "When there is a large volume of general sales, cooperative members are required to return development profits equivalent to four to five times the construction cost difference for rental apartments." She added, "The construction cost for general sales units should be reasonably adjusted to match the construction quality of reconstruction projects, and to enable expanded supply through reconstruction, additional floor area ratio beyond the basic ratio should be allocated in proportion to the increased supply."

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