Property market problems ripple into the wider economy

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Property market problems ripple into the wider economy

Published: 04 Dec. 2022, 16:26

Apartment complexes are seen from the Lotte World Tower in Songpa District, southern Seoul, on Nov. 30. [NEWS1]

Troubles in the real estate market are spilling over into other parts of the economy, with property agents, interior design businesses and movers feeling the effects of the downturn.

“Not even the IMF crisis, the global financial crisis and even the Covid-19 pandemic were as bad as today,” said Goo Sam-jin, a CEO of a moving company in Gwanak District, southern Seoul.

He said he hasn't seen anything like this in 30 years of business.

“While business is on the decline, labor costs keep going up,” Goo said. “I don’t know how long I can hold on under these circumstances.”

In a good year, he gets 100 moving jobs in a single month. Last month, he did 40.

He usually gets paid between 900,000 won and 1 million won for a moving job using a single 5-ton truck.

The four moving employees get 120,000 to 180,000 won each. When adding other expenses, including fuel, he only pockets 100,000 won on a single job.

Amid rate increases by the Bank of Korea and higher taxes, the number of property transactions has declined.

According to the Ministry of Land, Infrastructure and Transport, in the first 10 months of this year, 449,967 housing units were purchased nationwide.

That’s roughly a 50 percent drop from 894,238 units during the same period last year.

In Seoul in October, only 900 apartments were bought, which is one third of the 2,839 units in the year-earlier period.

In the first 11 months of the year, 48 units were traded at the 9,510-unit Helio City apartment complex in Songpa, southern Seoul. That’s a sharp drop compared to the 166 units during the same period last year.

Real estate agents were directly hit by the drop in transactions.

In the first 10 months of the year, 9,936 real estate agencies either closed shop or suspended business temporarily.

“We only made one successful transaction this year,” said Seo Jae-pil, who represents a real estate agency in Nowon District, northern Seoul. “The number dropped to around 10 percent of the previous year.”

A real estate agency in Seongdong District, eastern Seoul, had to fire an employee in September, saying they felt pressure in meeting payroll.

“Every month we had to pay 1.5 million won on top of meal expenses, but there were more days that the employee had nothing to do,” said the owner of the real estate agency.

The owner of a moving company based in Suwon said some of his employees are taking other jobs, such as delivery or designated drivers, as there are no jobs during the day.

An interior design company owner in Songpa, Seoul, has suspended business for the last two months.

“People could only afford to renovate their apartments when the real estate market is good,” Song said. “But nowadays, there are none.”

The interior design shop owner said he would usually get four to five contracts a month especially as his office is located near a huge apartment complex.

But he hasn’t received any major renovation jobs since October, and his schedule for this month is also empty.

“I’m barely holding on with small jobs such as repairing pipe leaks and heating systems,” Song said. “It’s like I’m in a game in competing to see who lasts long before folding business.”

Experts argue that the government needs to come up with measures that would help boost housing transactions, such as by lowering taxes.

“Transactions should be encouraged by lowering the acquisition tax,” said Kim Sung-hwan, an associate research fellow at the Construction & Economy Research Institute of Korea. “Only then will related industries, especially small businesses, revive.”

BY HWANG EUI-YOUNG [cho.jungwoo1@joongang.co.kr]