Is the Upward Trend in Seoul Housing Prices Slowing?... Three Essentials for Lasting Stability

Since the implementation of the government's macroprudential regulations in the second half of last year, household loans, including mortgage loans, have continued to slow down. While the upward trend in housing prices in the Seoul metropolitan area has also somewhat eased recently, there still remains a mix of both upward and downward possibilities in the market.

On March 12, the Bank of Korea stated in the issue analysis section of its Monetary and Credit Policy Report, titled "Recent Household Loan Situation and Future Risk Assessment" (Minjeong Kim, Wonmi Han), that "although the government's strong policy measures have somewhat weakened expectations for further increases in housing prices, it remains to be seen whether this will lead to a lasting stabilization of the housing market and household debt."

The main factors cited as contributing to a decline in housing prices and a reduction in household loans include rising household loan interest rates, government measures to stabilize the housing market and address household debt, and strengthened management of household lending by the financial sector. Since October of last year, market interest rates have risen, resulting in higher mortgage and unsecured loan rates, which are forecast to constrain borrowing demand. Last month, the average monthly interest rate on five-year bank bonds rose by 15 basis points (1bp=0.01 percentage point) from the previous month to 3.73%. Furthermore, following real estate measures introduced last year, the government announced new plans to expand housing supply in January of this year, and the exemption from the heavier capital gains tax for multi-homeowners is scheduled to end on May 9. These actions have led to an increase in apartment listings in the Seoul metropolitan area and have dampened expectations of further housing price increases. In addition, the tightening of lending caps at individual branches of major banks, the temporary suspension of online lending, and the suspension of intermediary loans in the mutual finance sector have all contributed to limiting the growth of household debt through stronger total loan management.

However, upward risks remain. The upward trend in housing prices, which was concentrated last year in Seoul's three Gangnam districts (Seocho, Gangnam, Songpa) and the so-called Ma-Yong-Seong area (Mapo, Yongsan, Seongdong), has spread this year to other areas of Seoul and key regions in Gyeonggi Province. If transactions of medium- and low-priced homes continue to increase, there is concern that demand pressure for mortgage loans could rise. A Bank of Korea official said, "The proportion of housing transactions under 1.5 billion won in the Seoul metropolitan area is increasing, and the amount of lending associated with these properties is estimated to be greater than that of homes priced above 1.5 billion won."

Additionally, the continued rise in Jeonse rental prices may stimulate end-user demand for home purchases and limit the decline in housing sales prices, potentially increasing pressure for further household lending in the future. Although the supply of new housing is shrinking, Jeonse prices in the Seoul metropolitan area are continuing to rise due to tighter regulations on Jeonse loans and other factors.

A Bank of Korea official emphasized, "While consistently implementing macroprudential policies, it is necessary to continue policy efforts to implement effective supply measures in a timely manner, and to strengthen structural reform efforts to ease the concentration of population and credit in the Seoul metropolitan area and the real estate sector."

Yonhap News

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