May Apartment Pre-Sale Outlook Rises Nearly 20 Points... Surge in Jeonse Prices Drives Increase

Seoul apartment view. Photo by Yonhap News

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The upward trend in jeonse prices has stimulated homebuying sentiment, leading to a significant improvement in the outlook for apartment pre-sales this month.

According to a survey conducted by the Housing Industry Research Institute (HIRI) targeting housing developers on May 12, the nationwide Apartment Pre-Sale Outlook Index for May was recorded at 80.0, up 19.1 points from the previous month. The Pre-Sale Outlook Index is a quantified indicator based on a survey of housing developers regarding the conditions of apartment complexes that are about to be or are currently being sold. An index above 100 indicates a positive outlook for pre-sales, while an index below 100 means the opposite.

In the Seoul metropolitan area, the index was projected at 85.6, up 4.5 points. By city, Seoul reached 100, up 2.9 points; Incheon rose by 8.3 points to 75.0; and Gyeonggi Province increased by 2.4 points to 81.8.

HIRI explained that Seoul's pre-sale outlook index reaching the baseline of 100 is likely due to high prices and stricter loan regulations making it harder to enter the Gangnam area, which has driven homebuyers towards surrounding regions where prices are relatively lower, thus raising expectations for pre-sales.

In addition, apartment jeonse prices in Seoul rose by 0.22% in the third week of last month, marking the largest increase in six years and four months, which further stimulated buying sentiment. During the same period, Seoul apartment sale prices also rebounded, rising 0.15%.

In non-metropolitan areas, the outlook for pre-sales also improved, with the index rising by 22.2 points to 78.8. By region, North Chungcheong Province saw the most significant improvement, up 35.0 points, followed by South Jeolla Province (up 29.2 points), Busan (up 27.7 points), North Jeolla Province (up 27.3 points), Ulsan (up 24.6 points), and Gangwon Province (up 24.5 points).

HIRI stated, "Although the nationwide average pre-sale outlook index of 80.0 represents a 19.1-point increase from the previous month, it still falls significantly short of the baseline, so it is difficult to say that the outlook for the pre-sale market has fully recovered. The recent rise appears to be due to the possibility of a ceasefire agreement between the U.S. and Iran, as well as a base effect, even though cost burdens for construction, loan regulations, and high interest rates remain significant obstacles."

HIRI added, "Going forward, the outlook for pre-sales will likely be influenced by the government's policy direction after the June local elections, the evolution of U.S.-Iran tensions, and the conditions of the financial market. Therefore, changes in the market flow driven by these factors will be important to monitor."

Meanwhile, the Pre-Sale Price Outlook Index for May was recorded at 104.7, up 0.2 points from the previous month. Rising prices of key materials such as paint and windows, caused by supply instability in naphtha due to the prolonged Middle East conflict, in addition to higher import raw material costs driven by the strong exchange rate and increased interest expenses due to the rising interest rates on real estate project financing (PF), have all contributed to continued upward pressure on pre-sale prices.

The index for expected pre-sale volume fell by 6.6 points from the previous month to 83.1, while the index for unsold inventory rose by 5.9 points, reaching the baseline of 100.0.