On rising rates, Seoul’s housing market seen entering recession

The housing market in Seoul appears to have entered a period of stagnation not only with the prices of apartments -- the major residential type in the city –dropping, but also the number of transactions falling due to increased interest rates on loans, data showed Monday.

According to Zigbang, a local property technology firm, the number of apartment units in Seoul that traded at lower prices than before has surpassed that of apartments that traded at higher prices.

Separate data from the Korea Real Estate Board also showed that apartment prices in Seoul fell 0.09 percent last week, down for a 12th week in a row.

Even Seocho-gu, a residential district in southern Seoul with high demand that had resisted any price drop since the third week of February, saw trading prices finally fall last week.

For the third quarter of this year, 54.7 percent of Seoul apartments on the market have traded at a lower price -- the highest percentage of cheaper housing trading observed in the recent decade.

Not only are Seoul’s housing prices dropping, but so are the number of apartments being traded on the market.

In the first quarter of this year, only 3,333 apartments were traded in Seoul -- the least traded during a quarter since 2013.

“Housing transactions are not taking place even though the apartments are on the market at a lower price. That is how much the apartment market in Seoul has contracted,” said an official from Korea Real Estate Board.

Zigbang explained that the decrease in transaction volume and the increase in the ratio of cheaper transactions reflects that the apartment trading market is going into recession.

“External factors such as higher borrowing cosst and high inflation will continue to drop housing trades and housing prices for a while. But this is unlikely to lead house owners to panic sell or result in a hard landing of the apartment market,” said a big data researcher from Zigbang.

A key factor dragging down apartment prices is the rising interest rate, which has further frozen demand for homebuying in Seoul, according to observers.

“The Cofix, a benchmark lending rate for mortgage loans, stood at 2.90 percent in July, up 0.52 percent from June,” said Yeo Kyung-hee, a senior researcher from Real Estate R114. “The transaction slump in the apartment market is likely to continue until the end of this year due to the contraction of buying sentiment as the interest burden increases.”

By Hong Yoo (yoohong@heraldcorp.com)