Real estate prices in Korea, which have experienced a ceaseless historic increase, are showing an unprecedented downward trend.

Although the sales volume of real estate as of July 15th was 51.0% higher in Seoul and 88.3% higher in Gyeonggi compared to the previous year, trading volume did not increase accordingly as consumer sentiments shrank, according to Asil, a real estate big data company.

The Korea Real Estate Board’s Seoul Apartment Sales Index indicated a decline in housing demand for 10 consecutive weeks since May 9, with the index dropping to 86.4 on July 11th. (An index below 100 means that there are more people willing to sell than buy housing.)

 Real estate sales prices are also showing a decrease. As of July 11th, apartment prices in Seoul fell 0.04% from the previous week, a downward trend that started 6 weeks ago.

In response to this, professor Dae-Myung Kim of Financial Real Estate at Taegu Science University said, “Although sales volume [of housing] has increased due to the government’s decision to relieve the burden on capital gains tax for multi-house owners, the commonplace perception in the market that housing prices have already reached a peak and a heightening burden on mortgage loan interest caused by increased interest rates have led to decreases in demand, preventing the trading volume from recovering. 

In particular, the increase in interest rates had a massive impact on the ‘new generation’ who tend to invest in real estate in a risky way by becoming heavily dependent on loans.”

The Bank of Korea raised the base interest rate from 1.75% to 2.25% on the 13th - the first “big step” decided by the central bank. (A “big step” refers to a 0.5% increase in the interest rate, which is twice as large as the usual increase of 0.25%.) 

 It should also be noted that the third consecutive increase in interest rate following the 0.25% increases in both April and May is historically unprecedented.

The Bank of Korea’s decision to prevent inflation has brought concerns that it would increase the burden on mortgage loans and household debts in general. 

Some have raised the possibility of a collapse in the real estate market.

Mr. Kim concluded that the government would intervene in this situation to support the real estate market. 

Yet, at the same time, he acknowledged that the downfall of the real estate market would continue throughout the next year despite the government’s efforts. 

Ria Ju
Year 13
North London Collegiate School Jeju