Think tank expects Seoul home prices to stay put

Home prices are expected to remain unchanged next year, but areas outside the capital will likely suffer a price drop of 0.7 percent.

A report released last week by the Korea Housing Institute, a state-run think tank, projected that home prices in the greater Seoul area will inch up 0.5 percent, a drop from this year’s 1.3 percent increase, while the cost of jeonse, or lump-sum deposit rental contracts, will rise 0.4 percent.

Experts say factors that will affect next year’s housing market include new government loan regulations, interest rates, household debt and apartment supply. Among them, the biggest will be whether Korea’s central bank will raise its key interest rate in tandem with a possible interest rate hike by the U.S. Federal Reserve later this month.

“If the Fed raises its interest rate, the pressure on the Bank of Korea to raise its rate will grow,” said Kim Duk-rye, a researcher at the Korea Housing Institute. “Buyers looking for homes in which to live rather than invest will especially be worried if the key interest rate rises and other rates go up. This will affect the housing market.”

Another major problem will be the large number of people moving into newly-built apartments. While the overall supply of apartments will be reduced 10 to 20 percent next year due to tighter government regulations approving fewer construction projects, there will still be 606,000 new apartments available next year, 11 percent more than this year.

With so much supply and not enough demand, some landlords could have trouble finding tenants interested in moving into apartments on a jeonse contract, which usually lasts two years on a single lump-sum deposit. This will force landlords to offer jeonse contracts at exceptionally low prices.

Next year’s apartment sales are expected to shrink around 9 percent to 940,000 units. This year, the number was 1.03 million units.

The Korea Housing Institute has projected major difficulties, like higher interest rates and a slowing economy, to reach their peak in the second half next year. Additionally, several deregulation measures enacted to boost the housing market will come to an end in the second half next year and could further burden the market.

“Once these eased regulations end, the housing market’s instability will grow even bigger,” said Kim, the researcher at the Korea Housing Institute.

BY KIM SUNG-HEE [lee.hojeong@joongang.co.kr]