"Still Trusting Apartments?"... Apartments Account for 6 out of 10 Seoul Housing Transactions Despite Strict Regulations

Apartment-dense area in Seoul. Photo by Yonhap News

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The proportion of apartments in Seoul's housing transactions was recorded at around 60%. This figure had previously dropped below half last year due to restrictions such as lending regulations and the designation of land transaction permission zones, but it has rebounded this year. The continued concentration on apartments, even as actual residence demand in Seoul's housing market increases, is attributed to the persistent preference for new constructions and the widespread view that the supply shortage cannot be resolved in the short term.

According to an analysis of the Ministry of Land, Infrastructure and Transport’s transaction disclosure system on March 7, apartments accounted for 58.5% of all housing transactions in Seoul last month-including apartments, multiplexes and townhouses, single-family and multi-family homes, and officetels-up 7.8 percentage points from the previous month.

The apartment share had declined last year following the 10·15 policy measures that imposed transaction restrictions. In October last year, the share was 63.3%, but it dropped to 46.4% the following month.

Following the implementation of the 10·15 measures, in regulated areas, the loan-to-value (LTV) ratio limit for first-time homebuyers and single-homeowners under disposition requirements was tightened from 70% to 40%. Additionally, the maximum amount of mortgage loans was differentiated based on property price, ranging from up to 600 million won to 200 million won. With the entire city of Seoul being designated as a land transaction permission zone, a two-year mandatory occupancy requirement was imposed when purchasing apartments, effectively blocking gap investment (buying with a lease already in place). Due to these regulations, apartment demand significantly shrank, resulting in a decrease in their transaction share.

Seoul cityscape. Photo by Yonhap News Agency

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Despite these measures still being in place, the proportion of apartment transactions has increased again. This is largely because expectations for price increases remain stronger for apartments than other types of housing. Last year, the comprehensive housing sales price index in Seoul rose by 7.07%, while apartments saw a higher increase of 8.98%. In addition, with the heavy capital gains tax on multi-homeowners set to take effect from May 9, properties being placed on the market for tax-saving purposes appear to have contributed to the higher proportion of apartment transactions.

While the preference for apartments in Seoul remains pronounced, limited supply is drawing attention to how the market dynamics will unfold. The scarcity value of newly built apartments, which are particularly favored, is likely to increase due to their limited supply. According to data from real estate research firm Real Estate R114, the total number of newly built apartments to be supplied in Seoul over the next four years, from this year to 2029, is projected at 57,010 units.

This averages to 14,253 units per year, which is less than half of the annual average supply of 32,494 units from 2022 to last year. As of November last year, the average sales price of newly built apartments in Seoul (those less than five years old) was 1.85144 billion won, about 600 million won higher than older apartments (over ten years old), which averaged 1.26984 billion won.

Kwon Youngsun, Team Leader at Shinhan Bank Real Estate Investment Advisory Center, stated, "Even in the outskirts of Seoul, many newly built apartments are surpassing previous price peaks. Given the clear shortage in apartment supply, we expect prices to continue rising due to the scarcity of new apartments."

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