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Base rate cut unlikely to stimulate property market
By Lee Min-hyung
The coronavirus pandemic has frozen apartment transactions in Seoul, putting investors into wait-and-see mode despite the nation's real estate fever.
According to data by Seoul's metropolitan government, the number of apartment transactions has steeply declined in March, compared to a month ago.
This is largely because the rapid spread of COVID-19 has weakened investors' confidence, as the virus is on track to paralyze economic activities in every industry here and abroad.
The statistics showed only 875 apartment transactions were made for the 15 day period from March 1 in Seoul, a drop of 87 percent from those in February when the virus-induced fear began coming to the fore in Korea.
As the virus is posing a growing threat to the local and global economy, some critics even argued that the pandemic crisis, coupled with the prolonged economic slowdown, would lead to a drastic fall in housing prices in the capital area.
Market experts voiced their consensus that the key lies in how long the virus threat persists here.
"If the virus continues to threaten the local economy for a longer period of time, this will definitely be a negative factor to the real estate market here by possibly cutting apartment prices in some overheated areas," Kwon Dae-jung, a real estate professor at Myongji University, said.
"There stands enough of a chance that the real estate price drops at this time due to the year-long economic slowdown recently becoming deeper because of coronavirus worries here and abroad," he said.
But the expert pointed out it is unlikely that overall Seoul apartment prices will plummet on a similar level of that during the 2008 global financial crisis when prices of some landmark apartments in Seoul's most affluent Gangnam district fell by 20 percent for about four months.
"Apartment prices can oftentimes go up sharply for a number of reasons, but it rarely goes down steeply," he said.
Despite the virus-triggered economic uncertainty here, the housing price appears unlikely to plunge for the time being, according to him.
On Monday, the Bank of Korea (BOK) slashed the key interest rate by 50 basis points to 0.75 percent, in a surprise move to tackle the economic doldrums.
The decision theoretically boosts vitality in the real estate market, as the rate cut allows investors to borrow money more easily. As the nation's capital market is heavily reliant on the property market, both ordinary citizens and corporate-level investors seek stable profits in real estate.
But Kwon said the housing market would continue to remain frozen despite the rate cut, as the coronavirus fear has created a nationwide mood to refrain from going out for economic activities. On top of that, the government's strict regulations on the housing market blocked investors from engaging in apartment transactions here, according to him.
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| This is the complex of apartments in the affluent Gangnam area in Southern Seoul. The coronavirus shock has frozen apartment transactions in Seoul / Yonhap |
"The rate cut will do little good to possibly revitalizing the real estate market, and chances are the monetary decision could raise the price of some of Seoul's satellite cities where the government has imposed tough regulations," he said.
Kim Yeol-mae, a real estate analyst at Eugene Investment & Securities, concurred, saying the BOK decision would not help stimulate the housing market.
"The real estate market here is unlikely to gain vitality in a near future simply due to the rate cut, as the coronavirus is shrinking offline economic activities," she said.
It is also hard to predict when the market will recover from the virus shock, as the coronavirus-led economic shock is totally different from other previous infectious diseases, according to her.
