Apartment Prices to Drop 0.9% in Second Half of 2003

Housing and lease prices are predicted to show a downward trend in the second half of the year.

The Korea Research Institute for Human Settlements (KRIHS) released a report Sunday saying that the real estate market will be stabilized with a downward trend considering decreasing housing investment profitability and economic growth rates, the business cycle of the market, and the measure for housing stability by the government.

The research institute forecast that in the latter half of this year housing prices will fall by 0.6% while lease prices will drop by 2.5% if this year’s economic growth rate stands at 2-3%, household loans decline 5% and interest rates will remain at their current level.

The sales and leasing prices of apartments, in particular, were expected to fall 0.9% and 3.7%, respectively.

Meanwhile, land prices will remain unchanged.

“With falling economic growth rates, household incomes have decreased and the number of houses soared last year. Therefore, the range of plunging leasing prices will be relatively large,” said Sohn Kyoung-hwan, a KRIHS researcher. “The long-lasting trend of falling prices for leases is very likely to lead to a decline in housing prices,” he added.

“But real estate prices can surge at any moment if interest rates drop further and measures to absorb market liquidity are not effectively pushed for,” he warned.

The report, however, analyzed that the theory of a ‘burst bubble,’ which says that a collapse in apartment prices will have a negative impact on the economy overall, is unlikely to be realized.

In other words, as mortgages are at the level of 40% and the limit of loans is decreasing due to government measures to curb household loans, chances are very low that a vicious circle of falling real estate prices, lack of mortgage and increasing houses for sale could happen.