Korean Real Estate: Analyst Insights

Global real estate market is witnessing challenging times that are marked by volatility and corrections. South Korea is also amidst a similar scenario, with a significant fall in real estate prices.

Global real estate market is witnessing challenging times that are marked by volatility and corrections. South Korea is also amidst a similar scenario, with a significant fall in real estate prices. A luxurious property located in the elite neighborhood of Gangnam in Seoul, which was valued at 3.2 billion Korean won (approximately 2.5 million USD), is now being offered for 2.35 billion won, witnessing a decline of 26.5%. Furthermore, many local real estate developers have started slashing prices of new homes by up to 30% and even offer a Mercedes-Benz car for buying a house.

Statistics indicate that house prices have fallen for nine consecutive months in South Korea. The selling price of certain apartments located in Seoul has plunged by 30-50%. However, the number of successful transactions has fallen by over 70% compared to the peak period. The Central Bank of Korea (BoK) has aggressively increased interest rates to control inflation, which has hugely impacted the real estate market.

Another factor that poses a threat to the Korean real estate market's recovery is the dwindling population. South Korea is grappling with a high aging rate and low birth rate. According to 2018 statistics, South Korea's total fertility rate was 0.98, which is not only the lowest amongst the OECD's 37 member countries but also the lowest globally. The average fertility rate amongst OECD countries is 1.63.

Despite all these factors, the Korean housing market shows signs of recovery, with housing transactions in Seoul crossing more than 3,100 in May 2023 after remaining below 1,000 for six consecutive months until December 2022. The Bank of Korea has maintained its key interest rate unchanged at 3.5% for the past three meetings while the US Federal Reserve has paused interest rate hikes during its June meeting. The prices of apartments have increased in certain southern districts of Seoul.

KB Land, a real estate company, reveals that the apartment price index in the Songpa district, south of Seoul, has witnessed a steady increase for six weeks. Observers suggest that relaxed regulations have also contributed to positive market sentiment. South Korea's Finance Minister Kyung-ho is considering a partial relaxation of the debt service ratio (DSR) for landlords who need to return security deposits to tenants.

The Governor of the Bank of Korea, Chang-yong Rhee, states that the recent stagnation in the property market is showing encouraging signs of easing. However, financial market risks such as a rise in delinquency rates of real estate loans need attention. The BoK warns that housing prices are still high, and housing-related household loans are once again on the rise.

In conclusion, the Korean housing market has shown resilience and has started to recover, shedding its negative trend. The government has taken several measures to revive the market and is considering further reforms to promote the housing market's growth. Residents and investors can take advantage of this window of opportunity to buy or invest in properties.