Affected by the central bank's continuous interest rate hikes and fears of an economic recession, housing prices in South Korea have plummeted.

(Bloomberg file photo)

South Korea's apartment prices fell more than during the financial tsunami

[Financial Channel/Comprehensive Report] Affected by the central bank’s continuous interest rate hikes and fears of economic recession, South Korea’s real estate market has been extremely frozen. As a result, housing prices in South Korea from Seoul, the capital circle to local places have fallen sharply. Under the cycle of interest rate hikes, the decline is expected to continue It will continue until 2023, and the South Korean housing market may not recover until the second half of 2023 at the earliest.

According to KB Real Estate, in the first week of December, apartment prices in Seoul fell by 0.89% from the previous week, which was the largest weekly drop since the survey in April 2008, surpassing the 0.7% during the financial tsunami.

Nationally, apartment prices fell 0.66 per cent for the week, also the biggest drop on record.

Please read on...

According to data from the Korea Real Estate Board, the decline was even greater. In the first week of December, South Korea’s national apartment prices fell by 0.73%, the largest drop since the survey in May 2012, and the decline in the capital area was also the first. Come to 1%.

Apartment prices across the country have fallen for 31 consecutive weeks, and apartment prices in Seoul have fallen for 26 consecutive weeks.

Home prices have soared over the past five years, doubling in Seoul, making South Korea one of the most unaffordable markets in the world.

(Bloomberg file photo)

South Korea's housing prices have risen 3.8 times in 20 years and interest rates have been raised to reverse the upward trend

According to the analysis of DWS, a German asset management company, the average house price of apartments in Seoul has increased by 3.8 times in the past 20 years, reaching US$900,000 (about NT$27.59 million) in August 2022, surpassing Sydney, and slightly lower than Beijing and Shanghai and Singapore.

Housing prices have soared over the past five years, doubling in Seoul, making South Korea's housing prices one of the most unaffordable markets in the world.

In November 2022, the average house price of apartments in Seoul will be about 1.28 billion won (about NT$7.91 million), of which the average price of apartments south of the Han River will be 1.53 billion won (about NT$33.36 million).

The Bank of South Korea (BOK) started raising interest rates in August 2021, starting the tightening cycle earlier than most central banks.

At that time, the Bank of Korea raised interest rates by 1 yard (0.25 percentage points), adjusting the benchmark interest rate to 0.75%, and then raised interest rates several times to increase the interest rate to 3%.

The state of South Korea's real estate market was one of the top concerns of voters in the presidential election at the beginning of the year. As central banks around the world raised interest rates rapidly, pushing up mortgage rates, real estate across South Korea was also hit by the sudden shift in the market.

For every 1% increase in interest rates, the relative annual decline in house prices is 1%

The historic pace of interest rate hikes in the past year has put tremendous pressure on South Korean consumers. According to data from the Bank of Korea, mortgage loans increased by 8.7 trillion won in Q2 due to rising interest rates and increased debt burden.

Regulations on home loans began to be relaxed in August to support first-time homebuyers, but higher mortgage costs could lead to a financial crisis as 75 percent of household wealth in South Korea is tied to real estate.

The South Korean central bank reported that when the policy rate increases by 1 percentage point, house prices will fall by 0.4-0.7% in one year and by 0.9-2.8% in two years.

The report also found that Sejong City is most vulnerable to rising borrowing costs because of excess supply or a recent surge in prices.

The report also mentioned that as home buyers not only face higher borrowing costs, but also face strict lending restrictions, the downward pressure on prices will be greater.

The South Korean central bank will start raising interest rates in August 2021. The central bank report stated that when the policy interest rate is increased by 1 percentage point, house prices will fall by 0.4-0.7% within one year.

(AFP file photo)

In 2023, the actual transaction price of South Korean apartments is expected to fall by another 8.5%

The Housing Industry Research Institute (Korea Housing Institute) announced on the 12th the 2023 housing market forecast that by comprehensively considering economic variables and housing supply and demand models to predict next year's housing prices, it is expected that the national housing sales prices in 2023 will be higher than those in 2022. Falling 3.5% at the end of the year, national apartment sales prices will also fall 5%.

From a regional perspective, housing prices in Seoul are expected to fall by 2.5%, in the capital area by 3%, and in other areas by 4%. Apartment prices in Seoul are also expected to fall by 4%, in the capital area by 4.5%, and in other areas by 5.5%.

According to the actual transaction prices, in 2023, apartment prices in South Korea are expected to further drop by 8.5%, in Seoul by 9.5%, and in the metropolitan area by 13%.

The House of Maternity said that the number of housing transactions in South Korea in 2022 will be half of the 540,000 households last year (2021), and it is expected to hit the lowest transaction volume since the Korea Real Estate Institute began statistics in 2006.

However, the entire real estate market is expected to recover from the second half of 2023, with transaction volume expected to reach 750,000 units, an increase of 39% from this year. The main reason is that the collapse in housing prices will subside and buying sentiment will recover.

The hospital also pointed out that due to the sharp increase in short-term interest rates, the average mortgage-to-value ratio (LTV) and the high project financing ratio, the near-term risks are much greater than the 1997 Asian financial crisis or the 2008 financial crisis.

The maternity hospital also called out that the government should actively promote support measures to prevent the crisis from spreading under the panic of the construction company's bankruptcy.

South Korea's maternity hospital predicts that in 2023, the national residential sales price will drop by 3.5% compared with the end of 2022, and the national apartment sales price will also drop by 5%.

(Bloomberg file photo)

The risk of rising mortgage ratio is greater than the Asian financial turmoil

The Seoul Apartment Sales Outlook Index released by the Hospital in December was 47.2, down 4 points from 51.2 in the previous (November) month.

This indicator is a comprehensive assessment of the status of pre-sales or ongoing sales from the perspective of suppliers. If the index exceeds 100, it means that the sales prospect is optimistic, and if it is less than 100, it means that the outlook is pessimistic.

South Korea's national apartment sales outlook data improved slightly in December, rising 7.8 points to 52.4.

As the stimulus policy did not have a significant impact, in some areas where the index rose sharply in November, the index fell again in December. Gangwon-do decreased from 53.8 to 50, Chungcheongnam-do decreased from 50 to 47.1, and Gyeongsangbuk-do decreased from 52.4 to 50; After the sharp drop, Gyeonggi-do and Sejong City rebounded, increasing from 29.5 to 46.2 and 33.3 to 50 respectively. Ulsan Metropolitan City saw the recovery of the local manufacturing industry, and the index rose from 41.2 to 60.

In addition, Incheon, Gwangju, Daegu, Jeju, Busan, Gyeongsangnam-do, and Jeollanam-do were also affected by the loosening policy, and the index rose from the sharp drop to the average level.

The researcher pointed out that although the apartment sales outlook index generally rebounded in December, the government still needs to take timely measures as the market sales stagnate, such as financing tightening, high interest rates, and long-term transaction cliffs.

Grasp the pulse of the economy with one hand I subscribe to Free Finance Youtube channel

Already added friends, thank you

Welcome to 【Free Finance】

feel good

Already liked it, thank you.

related news