Koreans downsizing their digs as high interest rates bite

Small apartments in Seoul are surging in popularity, with purchases of units 60 square meters (645.8 square feet) or smaller hitting a record in 2022.

People are turning to small apartments as monthly payments for bigger places are just too high given higher interest rates.

According a 10,000-lab analysis of Korea Real Estate Board’s house sales statistics by size, the sales of apartments under 60 square meters were 55.3 percent of the 14,383 apartment transactions made from January to November last year. It was the most since the Korea Real Estate Board started compiling the data in 2006.

Small apartment trading has been on the upswing for years, with small-apartment deals as a percentage of all deals 36.6 percent in 2017, 36.9 percent in 2018, 41 percent in 2019, 42.2 percent in 2020 and 46.4 percent in 2021.

In Seongbuk, 74.5 percent of the trades were of small apartments, Geumcheon 71.8 percent, Nowon 70.3 percent, Guro 69.2 percent, Jongno and Jungnang 69.1 percent, Jung 64.2 percent and Yeongdeungpo 60 percent.

“Although prices of apartments are continuing to fall, more people are turning to small-sized, low-priced apartments that have relatively fewer hindrances due to mortgage interest repayment costs,” said Hwang Han-sol, a researcher at 10,000-lab.

“Given that the number of single- or two-person households is increasing, transactions of small-sized apartment buildings are likely to continue leading the market,” Hwang added.

With the introduction of a new fixed-rate government-sponsored mortgage — the Special Bogeumjari Loan — on Jan. 30, high demand for more affordable small-sized apartments is seen continuing.

In the Special Bogeumjari Loan program, 50-year, 500-million-won ($401,300) mortgages are available for apartments valued at 900 million or less at a fixed interest rate of about 4 percent. Debt Service Ratios (DSR) are not used.

According to Real Estate R114, a real estate transaction data provider, 60 percent of the Korea’s apartments are valued at 600 million won or less, 20 percent between 600 million won and 900 million won, and the rest more than 900 million won. More than 80 percent of the apartments nationwide are eligible for the Special Bogeumjari Loan program.

The Bogeumjari Loan program was originally for properties priced at 600 million won or less. It has not been expanded to include those priced at 600 million won and 900 million won.

In the Seoul metropolitan area, 41 percent of apartments are priced 600 million won or less, 27 percent are between 600 million won to 900 million won, and 32 percent are more than 900 million won.

“The Special Bogeumjari Loan can be applied not only by first-time home buyers but also for repayment of single home owners or for return of deposit for lease,” explained Yoon Ji-hye, a researcher at Real Estate R114. “For people who temporarily possess two houses, they can be eligible on the condition of disposing their existing house. Such conditions are expected to help increase transactions of many apartments that are put on the market priced less than 900 million across the country.”

BY KIM WON [seo.jieun1@joongang.co.kr]