South Korea: Price History

Country Rating  »

Home ›  Asia ›  South Korea ›  Price History

Waiting for President Lee in South Korea

While other Asian housing markets have been booming, Korea has been experiencing an almost complete pause in its residential property transactions over the past year. Volumes have shrunk to insignificance. Prices have hardly moved. Realtors are in despair.

The slowdown came after a wave of buying euphoria which extended all over the country, pushing the housing index up in a mini-boom, expecially in Seoul. Residential prices in South Korea rose rose 11.60% in 2006 (a 9.32% price rise in real terms), But they then only rose 3.08% in 2007 (a decline of 0.50% in real terms) House prices are up 23.9% over five years to end-2007, and 64.6% over ten years (all figures from Kookmin Bank).

President Roh weighs in

The reason for the slowdown? As so often in South Korea, government intervention has played a major role, when previous left-of-center president Roh Moo Hyun. Roh imposed new taxes and restrictions on real estate deals to deter speculators.

Seoul's most popular neighborhoods, three-bedroom apartments can now cost $2 million, about 100 times the average national income. Roh introduced a number of measures to slow price gains, among the most powerful of which was to raise capital gains taxes by as much as 60%, and to limit the size of some bank loans so that monthly payments do not exceed 40% of a borrower's monthly income.

President Roh Moo-hyun felt that the average house price was beyond the reach of average Koreans. But the moves have been widely unpopular, because they do not hit only the rich, but also (for instance) retirees who have benefited from the housing boom and now want to sell.

State intervention in the housing markets is a recurring theme in South Korea. Indeed the same sequence of events caused the market’s previous slowdown After falling by 13% from 1997 to 1998, house prices took a U-turn and rose 40% between 1998 and 2003.

President Lee disappoints

Ironically the real risk facing South Korea’s housing market is not over-high prices. South Korea faces an alarming potential glut of new housing over the next 5 years. Large developments begun during the early 2000s, when the market was soaring, will soon reach completion. According to some extimates, 1 million new units could hit the market by 2013.

The ongoing housing market slump could create a crisis that may resemble the unfolding sub-prime mortgage debacle in the U.S, according to a warning issued in May by the state-run Korea Institute of Finance (KIF). It added that the country's construction industry is grappling with a large number of unsold apartments, because potential homebuyers have taken a wait-and-see attitude since early last year.

President Lee Myung-bak, the incoming president, a successful former CEO of a construction company, widely known to be “real estate rich”, had promised in his election campaign to ease regulations and real estate taxes.

These promises caused optimism, especially in Northern Seoul and northern Gyeonggi Province, where some house prices rises took place in the first months of this year. The government’s reaction? To implement tax probes to suppress real estate speculation. The government has announced it will designate a number of districts in northern Seoul and cities of Gyeonggi Province as "housing transaction report areas'' and monitor them closely. All housing transactions there will be reported to the National Tax Service to be analyzed for tax evasion. Investors will have their money sources tracked. The financial regulatory body will check lenders to see whether they are abiding by the loan to value (LTV) ratio or debt to income (DTI) ratio.

Just the sort of thing to revive the market.

The number of unsold apartments is now the highest in 11 years, with 123,371 unsold apartments in January, according to the Ministry of Land, Transport and Maritime Affairs - the highest figure since July 1996. An official at the Construction Association of Korea, a lobby group, has warned that the number continues to pile up, more than 200 builders will be out of business by the year's end.

Unique rental market

The South Korean rental market is unique. There are three rental systems, the Jeongsei (literally, money in full) and two types of wolse system.

In the jeongsei system, the tenant gives the landlord key money amounting to 25% - 70% of the value of the property. No monthly rents are paid. At the end of the tenancy agreement, usually two years, the landlord returns the key money without interest and the tenant must move out unconditionally. About 68% of the rental market (30% of all households) is under this system. Jeongsei is not available to expats.

The wolse system follows the monthly rental system, however key money deposits are required of between ten to twenty times the monthly rent. The larger the deposit, the smaller the monthly payment.

A variation is wolse 2 in which the rent for the entire lease agreement is paid upfront. There is no deposit or key money, but there is also no refund for early termination.

South Korea - more data and information

• South Korean house prices, rents, and letting income - real data!
• How expensive are houses in South Korea, compared to the rest of Asia?
• How much rent can be earned from South Korean property, compared to the rest of Asia?

Your Comments

Post a comment