Seoul Apartment Prices Still Rising

The price of 50-pyeong units in the Hyundai Apartment Complex in Apgujeong-dong, Gangnam-gu, Seoul was 910 million won as of February 2003 just after the Roh administration’s formation. However, as of November 8, the price stood at 2.175 billion won, an increase of 1.265 billion won (139.0 percent).

The price of 62-pyeong units of Joogong One Apartment Complex in Banpo-dong, Seocho-gu, Seoul also increased during the same period, from 1.365 billion won to 2.6 billion won, up 1.235 billion won (90.5 percent). The price of 34-pyeong units of Eunma Apartment Complex in Daechi-dong, Gangnam-gu, rose from 565 million won to 1.275 billion won, up 710 million won (125.7 percent).

Even though the government has announced real estate measures every four and a half months to control apartment prices, including mandating longer waiting periods for reconstruction qualifications, higher obligatory rates of small-sized units, and contributions to infrastructure facilities, they are not working at all.

From February 2003 through November 8 this year, Dr. APT, a real estate research firm, analyzed the market prices of 653 apartments, which had qualified for reconstruction, in the Seoul Metropolitan Area, including Seoul, Gyeonggi, and Incheon, where the reconstruction committee has been formed. According to the research report, average per-pyeong prices of those apartment units increased from 13.73 million won to 28.71 million won, an increase of 109.1 percent.

Real estate professionals explained that the boom in prices of apartment that qualified for reconstruction, despite the continued government’s real estate control is due to the “balloon effect,” a sharp rise in prices because of strong demand driven into the apartments out of the control. When one side of a balloon is pressed down, the other side puffs up.

On March 30 this year, when a real estate measure to get reconstruction development profits refunded was announced, the price of 13-pyeong units in Godeok-Joogong One Apartments in Godeok-dong, Gangdong-gu, Seoul soared from 550 million won to 615 million won one month after the announcement. The apartments were not subject to development fees because the managerial disposal plan had been submitted before the announcement.

This trend has extended to the surrounding Godeok-Joogong Two to Seven Apartment complex, which came under the development fee system, a situation that weakens the government’s initiative.

“Balloon Effect” Disabled Government’s Control-

Regarding the reason for the balloon effect, experts say that reconstruction is the only way to provide housing for downtown areas, including Gangnam in Seoul, which lacks development sites.

Some experts point out that alleviating reconstruction controls should be a part of the government’s policy to expand supply.

Kim Woo-jin, director of the Residential Environment Institute, maintained, “The government’s policy, which moves forward with new city development in the metropolitan area but does not consider the reconstruction apartment complexes in Gangnam, the epicenter of apartment prices increases, cannot be helpful to stabilizing housing prices. Along with anti-speculation measures, any kind of program to increase the apartment supply in Gangnam should be devised.”

However, the government is reluctant, saying that apartment prices will get fueled, if reconstruction controls are removed.

abc@donga.com