Housing prices to climb as lower interest rates drive up demand

Housing prices in South Korea are expected to rise in the latter half of this year due to growing demand buoyed by lower interest rates, the Eugene Investment and Securities said in its quarterly report Monday. 

“Cash flow into the housing sector will continue to rise amid the prolonged period of low interest rates here, with a rise in demand triggering higher apartment prices,” said Kim Yeol-mae, an analyst at the brokerage.

Meanwhile, the average apartment price in Seoul during the second week of June rose by 0.03 percent from the previous week, jumping for two months straight, according to housing information provider Real Estate 114.
The increase came after the Bank of Korea slashed its policy rate to a new record low of 0.5 percent in May, down from the previous cut to 0.75 percent in an effort to revive the struggling Korean economy amid the coronavirus pandemic.

“People in need of homes are likely to buy new apartments in Seoul as well as the capital region where a number of reconstruction projects are in progress,” Kim added. A number of local governments including Gyeonggi Province and Incheon have announced development projects for public housing as well as transit network, heating up the real estate market.

The report analyzed that the lack of supply of new apartments across the country is another factor behind the rise in apartment prices alongside low interest rates. The number of new homes for sale in Korea this year stood at between 400,000-440,000, down 10 percent on-year, data showed. 

In addition, increasing jeonse rates will further drive up the country’s housing prices. The average lump-sum deposit payments in Seoul surpassed 480 million won ($398,880) in May, up 24.1 million won from a year earlier, continuing the recent upward trend, according to the KB Liiv ON, a real estate information service provider. 

The surge in demand for jeonse rentals came after the government tightened restrictions on mortgage loans to curb the overheated real estate market, Kim explained. 

By Choi Jae-hee (cjh@heraldcorp.com)