Gangnam Housing Market Flooded with Speculators

It rained steadily on May 6. From early in the morning, crowds of people 3 to 4 times than usual gathered at a branch of Kookmin bank in Daechi-dong, Kangnam-gu, Seoul. Bank tellers were kept extremely busy all day long, with customers standing in 100 person lines in the morning to around 50 to 60 in the afternoon. They were all the applicants who registered today to take the 4th right of distribution of the most sought after apartments in Seoul.

“In the morning the average waiting time for each customer was about 2 hours because more than 400 people rushed to the bank,” said assistant general manager of the Kookmin bank branch Choi Young-jin. “Even though many customers were sent to the other branches near here, the total applicants at our branch until closing will be over 1,000 people.”

This mad rush for apartment registration was seen in other Kookmin bank branches in Kangnam-gu. Chief of the apartment application department at Kookmin bank Cha Hyeong-geun anticipated that as the trend continues, the competition rate will be far beyond 434:1, the highest competition rate recorded in 2002 among non-owners of apartments and those at the 10th right of distribution.

The reason why there was such a large number of applicants was due to Jugong apartment in Dogok-dong, Gangnam-gu. It is presumed that 70% of the applicants today applied for a space in that apartment complex.

Popularity was anticipated for a long time previous to today. When the model apartment was shown on April 29, around 4,000 to 5,000 people toured each day. The government dispatched four officials from the National Tax Service to the model house to control real estate agents or ‘Tteotdabang’. The government maintains a firm grip on the housing market so that prices do not destabilize.

Despite efforts to reduce unnecessary interest in the right of distribution, popularity is still high due to the area. Dogok-dong is currently considered the golden area for real estate in Seoul with a large apartment complex containing 3,002 households. Another reason for the immense popularity is from the expectation of high premiums that would be guaranteed after acquiring the right of distribution. In addition, apartment complexes constructed by major construction companies like Hyundai and Ssangyong are popular among potential house-hunters.

A serious problem here is the fact that many of those standing in line today at Kookmin bank were investors looking for short-term investments. Besides, real estate agents did quite a job in promoting speculation among visitors.

“Through the notarization system, we can help you transfer your right of distribution within a year, without violating the transfer restriction policy,” they said tempting visitors. “If you are chosen, we can guarantee you at least 20 million won.”

Government control of this kind of speculative behavior is currently not in place.

“As long as the floating fund amount of 30 to 40 billion won is being collected or any residential area substituting Gangnam is not built, this trend will continue,” said a specialist in the housing industry, adding, “The government`s temporary policies which lack fundamental guidelines numb citizens only making matters worse. I believe that the best way out of this matter is to watch the market with patience.”

Ji-Wan Cha Chang-Won Kim cha@donga.com changkim@donga.com