Seoul housing market continues to hit a wall

Yook Jeong-soo last month renewed a two-year lease on his three-bedroom home on the outskirts of Seoul, preferring to pay the 30 percent rent increase his landlord demanded rather than buy.

“The rent rise was huge, I know, but why should I bother buying a house now, with borrowed money, when I’m not so confident that the price will go up?” said the 49-year-old office worker. “The heyday is over for the housing market.”

Home prices in Seoul and surrounding areas have stalled after climbing 66 percent from 2000 to February 2008, causing record levels of household debt and triggering government measures to cool the market. While that increase over the eight-year surge helped Korea avoid the three-year price surge in places like Hong Kong and China, it also soured many Koreans on buying homes.

The government’s decision on May 10 to ease mortgage lending limits for three of Seoul’s most affluent areas won’t prevent further declines in sales and prices, said Kim Hyeon-wook, an economist at SK Research Institute.
“Throwing money into homes is now considered a bad bet and this sentiment is just too strong to be curbed by the government’s deregulation,” said Kim. “People don’t expect prices to go higher.”

Home prices have dropped 0.7 percent this year after gaining 0.3 percent in 2011 and contracting 1.2 percent in 2010, according to an index compiled by Kookmin Bank.

Residential property transactions in greater Seoul fell 38 percent from January through April compared to last year, according the Ministry of Land, Transport and Maritime Affairs.

Home prices in Hong Kong have soared more than 80 percent since the beginning of 2009, while in China they rose 32 percent before the government started imposing curbs in 2010.

Koreans are avoiding real estate even as the economy expands. Gross domestic product grew 2.8 percent in the first quarter from a year earlier, marking 11 straight quarters of growth, the Bank of Korea said on June 7.

“Residential property prices in Korea will be sluggish or see a very slight increase,” said Choi Young-il, a vice president and senior credit officer at Moody’s Investors Service in Hong Kong.

Bloomberg