The housing market is continuing to stagnate, with industry sources saying sales volume dropping by 20-50 percent every month compared to the same period last year.
Following the sluggish demand, house prices are falling in the metropolitan area. Prices for apartments in Gangnam, where prices peaked in 2007, have been decreasing steadily since 2010.
The 149.79-square-meter apartments at Daechi I’Park, which were priced at 2.65 billion won in 2007, for example, dropped to 2.02 billion this month, according to Budongsan 114, a property market research firm. The same-sized Jugong apartments in Gaepo-dong also fell from 1.66 billion in 2007 to 1.14 billion this month.
The situation is similar in the first “new towns” in Gyeonggi Province, including Bundang and Ilsan, and even worse in the second new towns of Dongtan, Pangyo and Gwanggyo. The first new towns were planned in the late 1980s to tackle rising house prices and the second wave in the past few years.
Large and medium-sized apartments in Ilsan, for instance, were priced at below 10 million won per “pyeong” ― equal to 3.3 square meters ― for the first time this month. In the mid 2000s, when housing prices were rising, they had cost over 20 million won per pyeong.
The prices for apartments in Dongtan fell for five consecutive months, according to local real estate consultancy Dr.Apt. Those in Pangyo also decreased by 1.13 percent in the first half of this year compared to the previous half.
“The alleviation of the prohibition on trading exclusive purchase rights for apartments under construction rather urged buyers to turn away. If the second new towns are a shambles, the market will be seriously affected,” said Park Won-gab, head manager of Kookmin Bank’s real estate team.
Park expected the market slump to continue into the latter half of this year.
“The euro crisis is worsening, and purchasing power here is decreasing due to local economic stagnation as well. Governmental institutions moving to Sejong City will also affect the market,” he said.
Construction Economy Research Institute of Korea also forecast on July 15 that real estate prices in the metropolitan area would drop even more in the second half, at least 2 percent. The institute’s outlook for the first half of this year was a decrease of 1.1 percent.
“Weakening demand is worse than expected under the influence of the unstable macroeconomy. Housing prices are expected to fall more than in the first half, and the increasing supply of apartments will add fuel to the downward trend,” said the institute through a statement.
The increase in supply, decrease in demand and frozen transactions are leading to more “house poor,” which refers to those struggling under mortgage debt. They are unable to repay the debt as the loan rate skyrockets, and cannot sell their houses either due to lack of demand.
Only a few may see the moment as an opportunity to purchase low-priced mortgages because the general purchasing power is down due to the market stagnation, said Park.
Measures taken by the government on May 10 to boost market, however, have not been as effective as hoped.
Prices fell and transactions remained frozen in the Gangnam area, even after the Ministry of Land, Transport and Maritime Affairs announced the district would be no longer be designated as a speculation zone.
Other measures announced in May include ending the ban on trading exclusive purchase rights for apartments under construction and easing capital gains tax on households with one house.
The Land Ministry disclosed follow-up measures in June, such as the abolishment of the price ceiling on sales of apartments waiting to be built.
The government also announced Sunday plans to ease the debt-to-income rule in the hope of revitalizing housing transactions, meeting a backlash from the financial sector. Household prices dropped 0.06 percent in the metropolitan area since the government’s announcement, according to Dr.Apt.
The DTI rate serves as a major tool to control housing loans by tying the maximum amount of money that buyers can borrow to their income levels. The ceiling is 40-60 percent in Seoul and the surrounding Gyeonggi Province, the nation’s most populous region.
“The government’s measures including the easing on DTI rules have been seen to be somewhat meager to reverse the long-time depressed housing market,” said Ham Young-jin, a real estate expert at Budongsan Serve, a local real estate consultancy.
“The market needs a soft-landing, and for transactions to happen, the barriers against new buyers should be put down. Acquisition taxes should be lowered,” said Park.
By Park Min-young (email@example.com)