Plummeting price of Smaller Apartments

“BeonYoung,” a real estate broker’s office in Seoul, is located in an apartment complex in Siheung-dong, Geumcheon-gu. The broker is in the middle of a conversation with several customers who are grumbling, “The government seems to think that its policies succeed in lowering apartment prices in affluent Gangnam. However the government is unaware of the fact that the middle and lower income families are financially burdened. Apartment prices here rose 20 million won since I moved into Siheung-dong two years ago. I don’t think it makes sense that the government classified Siheung-dong into one of those ‘dangerously speculative districts.’” A 25 pyong (one pyong equals 3.3 square meters) apartment was traded at 180 million won in the beginning of 2004, but those who want a quick deal have to settle for 140 million won now.

Real estate trading is shrinking because the government has produced a series of policies that limit property transactions. Contrary to the government’s intention, the policies are affecting smaller houses owned by the middle or the middle-to-lower income families. For this reason, apartments, multi-family homes, town houses, and studio apartments, all of which are smaller than 30 pyong, are seeing a steep decline in their prices.

Smaller Houses, the More Affected-

Speed Bank, a real estate consultancy, collected information on the price fluctuation of mid to large apartment complexes, each of which consists of more than 100 separate apartment buildings, from June 1 to December 15 this year. They found that prices of apartments smaller than 25 pyong dropped by an average of 2.64 percent, and prices of mid-sized apartments between 26 to 40 pyong also went down 1.46 percent. One exception was houses greater than 41 pyong, with a price increase of 0.23 percent.

In 2004, new property policies followed one after another. The government’s aim was to drag down the ever-soaring prices of large apartments in Gangnam. However, those policies are affecting the wrong areas in Seoul, and lowering prices of small apartments in those areas. Therefore, the asset value of the middle class as well as the mid-to-lower income class is falling. With downward prices, people will find it tougher to trade up for a bigger home.

For instance, clusters of small multi-family houses or town houses around Gwanak-gu and Seocho-gu in Seoul suffered a 30 percent decrease in their prices for three to four months.

For some districts, even prices of new apartments, into which residents moved this year, plummeted below the initial distribution price level. In the case of a high-rise apartment built for both residential and commercial purposes, some of its 29 pyong homes are traded at 190 million won, which is 10 million won lower than the initial distribution price. Twenty-three-pyong houses of another high-rise around Silim Station in Gwanak-gu are for sale at 160 million won, 20 million won cheaper.

Banpo4-dong in Seocho-gu has both posh and large houses and small town houses. A 23 pyong town house here is quoted at 140 million won, down from 200 million won at the start of this year.

Manager Goo Jin-hoi at Choheung Bank’s Jamwon-dong branch said, “For some people who took out mortgages up to 80 percent of their home prices, the prices greatly fell even to the level at which they obtained their mortgage. Those houses are mostly small ones.”

The Homeless’ Cautiousness-

As for now, the homeless are delighted by the falling house prices, but they think that the shrinking market can lead to a diminished supply, which could once again steeply raise home prices.

Mr. Lee does not own a house and worriedly said, “I am happy right now and have not yet decided whether I have to buy a house at this point or wait longer for a further drop. I am also concerned that a price jump will happen again just as it did about a year ago.”

Jang Seong-soo, a senior researcher at the Korea Housing Institute, predicted, “Those most affected are owners of houses between 100 to 300 million won in the Seoul metropolitan area. With a composite property tax in place, an already significant price gap between real estate ‘blue chips’ and small apartments or multi-family homes will become more noticeable.”

In-Jik Cho cij1999@donga.com