"Middle East War Impact" April Housing Market Outlook Plummets for Developers

Apartment buildings in downtown Seoul. Photo by Yonhap News

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Amid external uncertainties stemming from the Middle East war and concerns over an economic slowdown, housing developers have become increasingly pessimistic about the outlook for the real estate market. The anticipation of stricter holding taxes following the local elections has also contributed to this sentiment, according to industry sources.

According to a survey conducted by the Housing Industry Research Institute among housing developers on April 14, the Housing Business Sentiment Index for April was recorded at 63.7, down by 25.3 points compared to the previous month. This index uses a baseline of 100: a reading above 100 indicates that more developers expect market conditions to improve, while a reading below 100 suggests that more expect conditions to worsen.

In the greater Seoul area, the index was projected to reach 78.2, down by 16.7 points. Gyeonggi Province experienced the largest decline, dropping by 23.1 points to 76.9. Incheon followed with a decrease of 14.8 points to 70.0, while Seoul fell by 12.2 points to 87.8.

The Institute explained, "The decline in the greater Seoul area appears to be due to external uncertainties resulting from the Middle East war, concerns about an economic slowdown, rising construction costs caused by higher oil prices, and worries about shrinking demand amid the recent upward trend in interest rates." The Institute also noted, "The government’s announcement of strong holding tax reinforcement measures after the June 3 local elections seems to have further dampened home buying sentiment."

Outside the greater Seoul area, the index dropped by 27.1 points to 60.6. In metropolitan cities, it fell by 33.3 points to 62.6, while provincial regions recorded a decrease of 22.4 points to 59.1.

Among metropolitan cities, Ulsan saw the largest drop at 41.2 points, followed by Daejeon at 38.9 points, Busan at 35.0 points, Sejong at 32.1 points, Gwangju at 28.0 points, and Daegu at 24.2 points. In provincial regions, Chungcheongbuk-do fell by 36.4 points, Gyeongsangnam-do by 32.2 points, Gangwon-do by 25.0 points, Jeollabuk-do by 24.2 points, and Chungcheongnam-do by 20.0 points.

The Institute stated, "The housing market outside the greater Seoul area experienced a steeper decline than the capital region due to its weaker demand base." It added, "Regions such as Sejong, Daejeon, and Ulsan, which previously showed relatively higher sentiment indices due to local factors like administrative capital status and shipbuilding industry recovery, experienced even greater declines this month due to the base effect and mounting concerns over a broader market downturn."

The Institute further commented, "Currently, unsold housing inventory is accumulating mainly in regional areas and the recovery in demand is being delayed, leading to a worsening business environment." It continued, "As concerns over delayed capital recovery and deteriorating project profitability grow, regional developers are experiencing significantly weakened sentiment."

Meanwhile, the nationwide funding index for April was forecast at 66.1, a decrease of 16.7 points from the previous month, and the construction materials supply index was projected to be 79.6, down by 17.0 points. The Institute explained, "As the war in Iran drags on, concerns over persistently high oil prices and inflation have intensified, and recent interest rate hikes have also been factored into the outlook."

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