Resurgent housing market may augur well for stocks
The inventory of unsold apartments is at its lowest level in 11 years and a record number of units are expected to be sold this year.
The stock market welcomes the improvements taking place in the property market, as an uptick in real estate prices is widely expected to have a positive effect on the equity market since the two markets are tightly connected.
Real estate represents nearly 80 percent of household assets.
According to NH Investment & Securities, the correlation coefficient between the Kospi, the nation’s main bourse, and housing prices is as high as 0.91, compared to 0.41 in the United States, which also is considered high. The closer the correlation coefficient is to one, the greater the association between two factors.
“What’s important is that the trend of real estate prices precedes that of stock prices in Korea,” says Kang Hyun-cheol, an analyst at NH Investment & Securities. The movement in housing prices occurs one to three months ahead of the Kospi, according to Kang. “With rare exceptions like China, where assets concentrated in the real estate market flow into the stock market, the rise in housing prices means bigger financial means for stocks,” he says.
The number of unsold apartments fell 8.4 percent month-on-month in January, the lowest level in 11 years, and transactions are on the rise. In Seoul, 8,144 apartments were sold last month, according to the Seoul Metropolitan Government’s real estate information center. This is the most in February since sales started to be tracked in 2006.
“Improvements in the pre-construction subscription system shrank waiting lists and allowed 2.2 million applicants to be promoted to the priority group” says Yang Ji-hye, an analyst at Samsung Securities. “When including applicants from other regions and newcomers, more than 10 million people are in the priority group for apartment pre-construction subscriptions.”
“The national real estate market has rebounded from the inflection point in the second half of 2013 and shown ascending numbers since last year,” adds Kang Seung-min, another analyst from NH Investment & Securities.
His forecast is based on new government regulations that helped to revitalize reconstruction in Gangnam District, rising demand for new housing because of high prices for jeonse (lump-sum deposit) apartments and low interest rates.
Analysts also expect to see a “wealth effect,” which refers to the phenomenon where increases in the value of assets such as stocks and real estate boost consumption.
BY KIM CHANG-GYU [firstname.lastname@example.org]