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Watch the upturn in housing prices

Published: 18 Jun. 2024, 20:18

Housing prices are edging up. They reversed direction in March but have been on the rise since then, according to the Korea Real Estate Board. The gain accelerated from 0.09 percent in April to 0.14 percent in May. Home prices in the capital region also picked up from last month, driven by the jump in rent prices.

Rent prices in Seoul grew 0.26 percent while the capital region saw a 0.28 percent increase last month, led by apartment rentals. These gains far outpaced the average nationwide increase of 0.19 percent. Apartment rent prices in Seoul increased by more than 4 percent compared to last May.

Apartment rent prices in Seoul have risen for 56 straight weeks until the second week of June as renters were biased toward modestly sized apartments amid a scare over non-apartment multi-residence scams, which pushed up prices.

According to apartment trade platform Asil, rent offerings for apartments in Seoul decreased 19.1 percent to 28,238 from a year ago, as of June 17.

Rent prices can increase again as the maximum four-year extension in long-term rent contracts under the new Tenant Law, which was enforced in July 2020, will largely end in July. At that point, landlords could push up rent that was tied up for four years in new contracts.

The rise in rent can forewarn an upward movement in home prices. Demand for home purchases can be excited by the rise in apartment rent value. Some could venture into purchasing homes on rent to afford them. Expectations for lowering interest rates and the government’s push to exclude single homeowners from comprehensive property ownership tax can also fan demand.

Supply remains lacking despite a renewed demand. The government vowed to boost housing supplies by 2.7 million units, but the progress has been slow. According to the Korea Institute for Human Settlements, licenses and permits for new housing plunged 70 percent and new constructions 47.3 percent on year last year due to the sluggish real estate market, high interest rates and expensive raw material prices. The Korea Housing Institute estimates a shortfall of 878,000 housing units from 2017 to this year. It also warned of a jump in housing prices in 2025 and 2026 due to a shortage of apartment supplies.

Supplying new housing takes time. The government must keep up with the housing supply to stabilize the real estate market. Belated actions will become useless once housing prices rise.

The government must lay out its supply action plan, lift unnecessary regulations and strengthen measures to prevent rent fraud to create an aggressive policy mix to stabilize demand and supply.