Jeonse prices rise in Q3

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Jeonse prices rise in Q3


Following a slight drop in the sales price of houses, jeonse (lump-sum rent) prices rose 0.8 percent in the third quarter and the trend is expected to continue throughout next year, according to a report by the Korea Development Institute yesterday.

The state-run economic think tank said housing transactions jumped 67 percent in the July to September period compared to the same period last year owing to the government’s recent plans, including lowering the time limit before apartments can be reconstructed and easing the loan-to-value (LTV) and debt-to-income (DTI) ratios.

“The third-quarter growth rate of housing transactions is 7.4 percent higher than the average of all quarters since 2006,” the report said.

Prices of two-year rental contracts for all homes climbed 3.9 percent in the third quarter nationwide over the same period last year.

The price of a two-year jeonse for an apartment in Seoul cost 64.6 percent of their sale prices in September, the highest level on record, the report said.

Due to the eased LTV and DTI ratios, the total amount of outstanding mortgages also increased, from 435.9 trillion won in July to 441.1 trillion won in August.

“Although mortgage issuances are growing in all financial sectors, the default ratio is quite stabilized,” the report said.

The report also showed that the nation’s household debt is being managed relatively well. The national average mortgage default rate was 0.6 percent in the third quarter.

However, some experts argue that the report seems somewhat removed from the market and that some consumers are postponing buying or renting a new house because they think that housing prices might fall.

Adding to its previous plan to boost the property market, the government announced in late October that it would slash the maximum commission for realtors on purchases of houses priced between 600 million won and 900 million won because the pace of recovery was not fast enough.

Many consumers said they decided not to move in to a new house after that announcement.

“I was going to purchase an apartment in Mokdong, which would be my first-time purchase, but I decided to wait until next year when the commission fee goes down,” said a 45-year-old businessman surnamed Kim. He said his apartment was worth 740 million won as of last week. The commission fee will be cut from about 6 million ton to 3.7 million won starting next year according to the government plan.

Some who were hunting for major reconstruction projects in Seoul are also holding back to observed how the market and price will change.

“After the government’s [reconstruction] announcement in September, there were really high expectations for the reconstruction market as prices of apartments in buildings subject to reconstruction surged,” said Choi Ki-hoon, a realtor in Banpo-dong, southern Seoul. “But for unknown reasons, including the reconstruction plan, the announced government measures are effective only temporarily.”

Since September, market expectations of the plans have been waning as housing prices failed to rise as much as expected.

Using Japan as an example, many economic analysts said housing prices will start falling in 2017, considering the current macroeconomic growth trend.

“Many macroeconomic experts say that these days the Korean economy might face disinflation, though it’s too early to mention deflation,” said Kim Jung-sik, an economics professor at Yonsei University. “As seen in Japan, when deflation begins, real estate prices are highly likely to plunge.”

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