Housing market slump forecast

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Housing market slump forecast

The housing market is forecast to slow even more next year, the Korea Housing Institute said on Wednesday.

The institute said in its report that housing market in 2016 is expected to experience another downturn in terms of number of transactions, supply volume and price growth.

Sale prices were forecast to rise 3.5 percent on average across the nation, while two-year lease, or jeonse, prices will go up 4.5 percent, the report said. This year, sale prices went up 4 percent, and jeonse prices rose 5 percent.

In the Seoul metropolitan area, house sale prices are expected to climb 4 percent next year and jeonse prices are seen to rise 5.5 percent. This year, sale prices went up 4.5 percent, and jeonse prices jumped 7 percent in those areas. In other provincial areas, both sale and jeonse prices are expected to rise 1 to 2 percent.

The institute said the third quarter of next year will be a turning point for the market, since the financial authority is scheduled to tighten the loan-to-value and debt-to-income ratios by that time.

“Financial policies associated with the housing market are going to change, which is now amplifying uncertainties in the market,” the report said.

The institute’s Business Survey Index (BSI), an indicator of housing supply and transactions, is predicted to post 118.5 next year, down from 130.3 this year. When the BSI is above 100, it means more construction companies are positive about growth in supply and transactions.

The index for the Seoul metropolitan areas is 100. The figure for the other provincial areas is 66.

But the institute dismissed recession concerns. “The market will seem less active than this year, because supply and transactions noticeably jumped this year, so it is not right to interpret the figures as if the market is falling back into recession,” it said. “The housing market is the only potential industry that can help recover the overall economy.”

Household debt, loan regulations and interest rates will be major factors that can affect the market next year.

“Financial policies will determine the fate of the housing market and the economy,” the report said.

“If the policies are adjusted in a manner that contracts housing transactions, the market would stop recovering, and that might pose threats to the real economy.”

As the jeonse prices are predicted to increase anyway, the institute said, tenants will have to carry bigger financial burdens to afford housing next year.

“The government needs to devise a housing plan that encourages first-time home buyers to engage in the market and lessens burdens,” it said.

BY SONG SU-HYUN [song.suhyun@joongang.co.kr]

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