Estate Market Takes “Deep Sigh”

As many as eight out of a total of 13 estate agencies running at Sanglokmaeul, Jeongja-dong Bundang-gu, Seongnam City, Gyeonggi-do, were being put up for sale yesterday. A licensed real estate agent said on condition of anonymity, “A majority of agencies in this area have not made any deals recently. I put my office for sale, but it has not even been sold yet. I had better close it.”

Chae Jeong-seok, 38, residing in an S apartment at Gil-dong, Gangdong-gu, Seoul, was scheduled to move into Munjeong-dong, Songpa-gu last month. But, he was not able to do because taxes for acquisition and registration on his apartment have been increased to a whopping 20 million won due to recent anti-speculation measures, while its price has increased by only 5 million won in the last year.

The number of cases similar to Chae’s has been increasing

Measures undertaken to block the price of houses from going up have ended up paralyzing estate transactions. This is followed by other side effects like deal breaking and sluggish house installment sales. Middle and small size company owners are also facing bankruptcy due to low capital flexibility caused by the frozen estate market.

From April 26, when the rule calling for a mandatory report on house purchases to the authorities was introduced as anti-speculation measures in four areas, including Gangnam and its adjacent areas in Seoul, to June 1, the average number of estate transactions per month stands at 38 in Gangnam-gu, 58 in Songpa-gu, 40 in Gangdong-gu, and 41 in Bundang-gu, a sharp decline compared to other years when about 500 to 600 deals were made.

Such paralysis of estate markets has led to breaking contracts and low apartment installment sales. Among 85 new apartment complexes built in Seoul and its adjacent areas since April, over half of them remain under 40 percent occupied according to sources from housing industry.

Due to capital congestion in estate market, middle and small size company owners are drawn into bankruptcy. The president of a textile company in Daegu said on condition of anonymity, “I put my house and landed property for sale due to the company’s financial difficulties four months ago. But, it has not sold yet and thus, the company ended up facing preliminary bankruptcy.”

As an increasing number of construction companies are suffering from below 10 percent selling in lots, they either give up launching new projects or delay them. The number of houses built from January to April this year stands at 82,158, a decrease of 40 percent compared to the same period last year.

“The government killed the market while trying to kill prices,” said a source from estate agencies and construction industries.

Kim Jong-seok, economics professor of Hongik University, said, “Extreme contraction of the real estate market can result in capital congestion the same way when banks reduce lending. Thus, it is highly likely to see a stagnant domestic market because the paralysis in estate transactions is killing investment opportunities and dwindling consumption powers.”

Eun-Woo Lee In-Jik Cho libra@donga.com cij1999@donga.com