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2017-06-09 14:20
By Park Jae-hyuk 



Koreans half-jokingly say that even ghosts cannot precisely predict the fluctuation of real estate value in the short term.

Experience tells us that it is impossible to forecast the ups and downs of property value if the market is efficient.

The Korean real estate market is also unpredictable. But it is so not because it is efficient but because there are so many factors affecting prices. Factors include speculators, borrowing costs, government policies and economic status to name but a few.

Whatever the reason, real estate prices jumped in recent months. Seoul’s house prices shot up 2 percent this year alone and the pace seems to be picking up of late.

This prompts the newly-inaugurated Moon Jae-in administration to mull introducing regulations to curb the real estate price hike.

The question is whether property prices will continue to increase. Alas, as Koreans joke, even ghosts cannot say for sure whether or not next year’s real estate prices will be higher than now.

When it comes to long-term forecasts, however, we can do something.

Topping other things off, the market forces of demand and supply should come first. The supply side is composed of two things ― new construction and sales of existing houses.

The former is unlikely to face big changes as builders will continue to construct high-rise apartments across the nation. But the latter is a different story as a growing number of baby boomers, who were born between 1955 and 1963, are retiring.

The generation whose number tops 7 million mostly failed to save enough for their retirement because they focused on educating their children. In most cases, their only asset is a single apartment with substantial mortgage loans.

They would not sell off their apartments easily but dearth of incomes would eventually prod them to dispose of their only assets to increase so that the number of houses for sale would rise.

In a nutshell, the supply of homes will increase over time.

What about the demand side?

Korean people do not have many babies anymore. The country’s birthrate is just above 1, which is one of the lowest in the world. Worse, youngsters suffer from a lack of decent jobs as their unemployment rate is higher than 10 percent.

In other words, demand will naturally dip unless for some reason people start to buy second apartments despite heavy tax burdens.

Even though we are not professional economists, it is evident that prices will head south when the supply goes up and the demand goes down. There may be some fluctuations but the long term trend probably will not change.

Also weighing on the real estate market is the rising household debt, which is almost tantamount to Korea’s yearly national output. This means that Asia’s No. 4 economy should channel all its added value created in a full year to pay off all the household debts, which stood at 1,360 trillion won in March.

On a wrong belief that the booming construction industry would lead to economic recovery, the former Park Geun-hye administration made people buy apartments with mortgages.

People can no longer borrow much to buy homes. If the economy continues to slump or the house prices go down, they would be forced to sell off their apartments, which they purchased with big mortgages.

It would be a classic vicious circle ― folks sell off homes due to depreciation of their house prices, which would further plunge because more put them up for sale.

In the short term, it might be true that even ghosts cannot precisely predict the fluctuation of real estate value. In the long term, however, even ordinary mortals can predict their movements pretty precisely.

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