|Apartments in Songpa District, Seoul, are shown in this photo. Housing prices in key areas of Seoul, including Songpa, rose steeply despite government regulations. / Yonhap|
Prices likely to continue on upward spiral
By Yoon Ja-young
Despite a series of anti-speculation measures, the government seems to have failed to curb apartment prices in key areas of Seoul.
Analysts expect further increases in the latter half of the year as new apartments in Seoul have become "rare items."
That is more than double the 3.37 percent rise in the first half of the previous year as well as higher than the 6.68 percent hike in the latter half of that year.
Apartment prices in upscale southern districts of Gangnam, Songpa and Seocho marked over a 9 percent increase.
They are showing signs of increasing further.
A 59 square-meter unit of the Mapo Raemian Prugio apartment complex in Mapo-gu, Seoul, was recently traded at 1.05 billion won ($937,500), marking a record high.
Apartment prices have continued increasing during the past four weeks, especially in southern Seoul as well as in Yongsan-gu and Yeongdeungpo-gu for which Seoul City has unveiled large-scale development plans.
According to the Korea Appraisal Board, apartment prices in Seoul rose 0.2 percent this week, marking a steeper rise than the previous week. Yongsan-gu and Yeongdeungpo-gu each saw a 0.29 percent gain, while Songpa-gu and Gangnam-gu in southern Seoul marked rises over 0.2 percent.
Hong Chun-uk, investment strategy team chief at Kiwoom Securities, said the prices of apartments in key areas of Seoul started increasing rapidly.
"Due to regulation, there haven't been many transactions, but those put up for sale sell immediately."
According to Seoul City's data on real estate transactions, daily apartment transactions in Seoul averaged 177.6 in July, which is less than half the 466.4 average from a year ago.
The monthly number of transactions averaged above 10,000 early this year, but it has been dropping ever since then.
Hong explained that those who own multiple houses decided to register as home rental businesses instead of putting their properties up for sale.
While the economic indices are in bad shape, he said the apartments in upscale Seoul are in another sphere.
"Average prices of apartments in Seoul reached 700 million won. The self-employed are suffering, but it seems that conglomerate workers are the main consumers of these apartments. Companies such as Samsung Electronics, SK hynix and S-Oil marked their biggest operating profits last year, and their salaries rose as a result," the analyst said.
"These companies are expecting to set new records on profits this year. Those who work for these conglomerates can expect to have more purchasing power, and they thus sign contracts to buy expensive apartments."
He pointed to polarization among workers.
"Though the number of newly added jobs fell to around 100,000, the number of quality jobs, or the jobs for regular workers who get social insurance, increased by 300,000.
"Those with decent jobs had expected real estate prices to fall, but it didn't happen. Now they have determined they should not wait for a plunging housing market and lose another chance."
Koreans have faith in apartments as an investment tool.
According to KB Financial Group Research Center, rich people in the country who have over 1 billion won in financial assets increased the ratio of real estate in their investment portfolio to 53.3 percent from 52.2 percent last year, while decreasing financial assets to 42.3 percent from 44.2 percent.
"But now it is becoming an issue that raises concern all across the automobile industry and more automakers are enhancing their efforts to prevent defects."
Lack of policy coordination
Discord between the central government and local government is also triggering a further increase.
Seoul Mayor Park Won-soon, for instance, pulled up the price of the Jinju Apartment Complex in Yeouido, Seoul, by nearly 500 million won in only five months by presenting development blueprints of Yeouido, nullifying the government's efforts to stabilize housing prices.
Hong said the government's anti-speculation measure was not a failure. "Without such policies, housing prices would have increased even more."
The rosy outlook, however, is limited to Seoul.
"During the past three years, a record high number of homes have been built. There is increasing concern of the supply surpassing the demand, especially in the provinces," said Kim Soo-hyung, a researcher at Hyundai Research Institute.
Analysts thus expect polarization in housing markets. Those in the provinces will mostly be stagnant, especially in areas where key industries were hit.
"Those seeing shrinking automobile and shipbuilding industries, such as in Ulsan, Geoje, Changwon and Busan, will especially see sluggish markets," Hong said.
While increasing supply can stabilize the market, there wasn't sufficient supply of new apartments in key areas of Seoul while high-income households increasingly want those. They are becoming "rare items."
"Unless the government announces massive supply plans, it wouldn't be able to pressure the market down," Hong said, pointing out that this can't be done in the short term.
Analysts expect the government may come up with further anti-speculative measures, including a key rate hike.
"It can designate more anti-speculation zones, or scrap tax exemptions on those who own only one house. There are many regulations that the government can think of, and I expect there will be more to come," Hong said.
Lim Byung-chul, senior researcher at Real Estate 114, meanwhile, said that the overall market will slow down in the latter half of the year.
"In the case of key southern districts, the government regulation restricts homeowners' gains from reconstruction of their old apartments. The possibility of a key rate hike and concerns about the oversupply of new apartments mean there won't be as a steep an increase as seen during the past three years."
He said the government will likely further stabilize the market through strengthened taxation and financial regulations.
"As the land minister mentioned, there will likely come further regulations anytime the market shows signs of overheating."