Real estate measures knock wind from marketIt’s not a good time to be a real estate agent. Ask Kim, who is an agent in Seocho District, one of Seoul’s toniest.
“Today I received a call offering an 84-square-meter [904-square-feet] Mido Apartment in Banpo for 1.8 billion won [$1.6 million],” said Kim. “Before the most recent government measures, that apartment was being offered at 1.9 billion won.”
Asking prices are being shaved of amounts up to 100 million won in the month since the government announced its 18th set of measures to cool off the real estate market, which were considered the toughest yet.
Not only did it ban mortgages for apartments valued at 1.5 billion won or above in areas designated as speculative or overheated - which includes all of Seoul - but the loan-to-value ratio for mortgages was reduced from the previous 40 percent to 20 percent on apartments valued at 900 million won or more.
Additionally, the government raised taxes on high-end apartment owners and owners of more than one residence.
Since the regulations came into effect, the market in Gangnam, southern Seoul, froze up.
“Nowadays it’s even hard to get a single contract signed,” said another real estate agent in Seocho District, southern Seoul. “Even this morning, a deal broke off after the buyer asked for a 50 million won reduction on an 88-square-meter Samik Apartment that was offered at 1.6 billion won.”
Jin, 70, owns two apartments in Gangnam.
“Last year I had to pay 40 million won in taxes on the two apartments including the comprehensive real estate tax,” Jin said. “This year that tax is expected to double and I’m not sure I can afford it.”
Jin said he is planning to either sell one of the apartments or bequeath it to his children.
According to the Korea Appraisal Board, Seoul apartment prices increased 0.04 percent this week compared to the previous week, which is nearly half the 0.07 percent increase of the previous week.
Average price increases have been slowing each week for the last four weeks.
Prices in Seocho District froze for the first time in 30 weeks.
In neighboring Songpa, they only inched up 0.01 percent.
Sales of high-end apartments saw a significant decline.
According to the Ministry of Land, Infrastructure and Transport, among the apartments bought in Seoul between Dec. 16 and Jan. 11, units valued at 1.5 billion won or more accounted for only 3.9 percent. Before the most recent government measures were adopted, such apartments accounted for an average of 8 percent of total sales.
“The government real estate measures, including restricting loans and increasing the tax burden, are aimed directly at Gangnam, where there’s a strong concentration of high-end apartments,” said Kim Yeon-hwa, head of the real estate team at Industrial Bank of Korea. “As such, the real estate market in Gangnam is in a dormant state.” Gangnam is used loosely to signify three high-priced districts in southern Seoul: Gangnam, Seocho and Songpa.
However, many have raised concerns about the so-called balloon effect, in which apartments in non-restricted areas could see sharp increases in their values as a result of restriction in other parts.
Apartment prices in the areas neighboring Seoul such Suwon, Gwacheon and Gwangmyeong are rising.
Suwon’s Paldal District has seen the sharpest hike. This week, its average apartment price rose 1.02 percent compared to the previous week. That’s more than double the rise in the previous week.
“The market for the time being will be split between Gangnam and non-Gangnam areas,” said Yang Yong-hwa, head of the real estate consulting center at KEB Hana Bank. “While Gangnam real estate market will be depressed, investments will likely flow into Gangbuk [districts north of the Han River] and other areas neighboring Seoul.”
BY YEOM JI-HYUN, CHOI HYUN-JOO [firstname.lastname@example.org]
More in Economy
June 1 property tax increases are happening as planned
It's a good time to give away residences
Unemployment line adds insult to injury for the jobless
Number of part-time workers hits record high