[EDITORIALS]Houses stand in a bubbleThe rise in apartment prices in Seoul is alarming. Apartment prices took off in the Gangnam-gu district in southern Seoul during the winter, though winter has traditionally been a slow season. Despite assertions that the current increase might be a "bubble," price appreciation for houses is spreading throughout the Seoul metropolitan area.
The trend in Gangnam-gu, the locus of the sudden leap in house prices, is expected to continue. As apartment prices have risen, fewer are for sale. Forecasts that house prices will continue increasing next year and demand will escalate due to reconstruction sparked the price increase. Adding to the crunch is the difficulty of this year's College Scholastic Ability Test, which spurred high demand for apartments in Gangnam-gu, where good test preparation academies are concentrated. Analysts said all these factors contributed to this month's 10 percent to 20 percent rise in apartment prices.
The pattern of price escalation for new apartments leading to a rise in prices for existing apartments in the same area is a never-ending cycle. For instance, during apartment sales that ended last weekend, 90 percent of the apartments in 26 out of 27 construction sites were sold, according to initial sales results. Among the 27 sites, all apartments in 11 sites, including sites in Gangnam-gu, were sold out. Considering that the rate of sales remained below 50 percent during the first half of this year, the recent sharp increase in the rate of sales indicates that the rise in apartment prices is near a dangerous level.
Analysts warn there are signs of a bubble in house prices. In Gangnam-gu, the average price per square meter for new apartments is nearly double the price in 1997, right before the financial crisis, and the average price per square meter of Seoul apartments surpassed the level four years ago this month. All of these statistics point toward a bubble. If the mounting investments in apartments this year were due to low interest rates, the results of higher interest rates next year should be considered.
Both apartment buyers and suppliers must be reminded of the painful fact that house prices plunged after the financial crisis and be cautious about a bubble.