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Preference for Smaller Homes Changing Real Estate Market

Preference for Smaller Homes Changing Real Estate Market

Posted June. 13, 2009 07:28,   


The surging demand for small homes is the hottest trend in the new apartment market.

Smaller apartments of 85 square meters or less are growing popular, while the popularity of mid and large-size apartments, which were far more in demand two to three years ago, has weakened.

Experts say socioeconomic factors such as the economic slowdown, decreasing real income, a surge in one or two-person households, and the aging population have raised demand for smaller homes.

○ Smaller apartments get more competitive

When Daewoo Engineering and Construction sold its new apartments Hyochang Park Purgio in Seoul’s Hyochang district in March, smaller apartments drew a lot of attention from primary buyer applicants.

Type B, which has an area of 59 square meters, recorded the highest competition rate of 19.6 to one. On the other hand, the larger types of 84 and 114 square meters posted single-digit competition rates.

Things were no different when Raemian Everheim apartments were sold last month in the Naeson district of Euiwang, Gyeonggi Province. The smallest model covering 59 square meters recorded the highest competition rate of 3.4 to one. When Hanyang Construction in April sold its new Hanyang Sujain apartments in Gyoha-eup in Paju, Gyeonggi Province, the competition rate for the smallest type with an area of 59 square meters was 1.4 to one. This was the only type that sold out.

Larger apartments did not sell out even by second-round applicants. When Daelim Industrial and Kolon Engineering sold newly built apartments in Incheon’s Shinhyeon district last month, smaller apartments got most of the attention while middle and large-size ones did not sell out.

This phenomenon was unimaginable three years ago. When Seoul Forest Hill State apartments located in Seoul’s Seongsu district were sold in November 2006, the average competition rate was 75 to one. That of apartments 117 square meters in area ranged from 36.1 to 50.8 to one, more than twice that of apartments covering 42 square meters (18.5 to one). When several builders jointly sold their newly built apartments in Seongnam’s Pangyo district in March 2006, middle and large-size apartments were more popular than smaller units.

Moreover, smaller apartments are considered more valuable. Online data provider Real Estate 114 says the prices of apartments 85 square meters or over in Seoul soared 32 percent in 2006 but fell 0.73 percent in 2007 and another 6.6 percent last year.

On the other hand, prices of apartments 60 square meters or smaller jumped 7.1 percent in 2007 and 4.4 percent last year despite the plunge in average housing prices nationwide.

○ Effect of financial regulations

Middle and large-size apartments were preferred between 2000 and 2006 amid the boom in the housing market. Many Koreans rushed to secure bank loans to buy bigger apartments.

Borrowing money to buy larger units seemed logical since the prices of larger apartments literally skyrocketed. Taking advantage of the Korean preference for larger apartments, domestic builders focus on producing larger apartments instead of smaller ones.

The previous Roh Moo-hyun government, however, introduced financial regulations including loan-to-value and debt-to-income ratios to end speculation, causing housing prices to begin falling in 2007. The new regulations prevented speculative money from flowing into the housing market, which, in turn, resulted in falling housing prices and demand.

Last year’s global financial crisis dealt a serious blow to the Korean preference for large apartments. With demand for new apartments down in the wake of the economic slowdown, the prices of middle and large-size apartments plummeted and builders faced difficulty selling new apartments.

○ Growing number of single households

From a narrow perspective, the economic slowdown and credit crunch helped raise the popularity of smaller homes. From a broader perspective, however, a surge in the number of single households and nuclear families, combined with the rapidly aging population, has raised the Korean preference for larger homes.

The Korea National Statistical Office announced the share of single households jumped from 16 percent of all households in 2000 to 20 percent last year. Similarly, the share of households of married couples without children also increased from 12 percent to 15 percent.

By 2030, the share of single households is expected to reach 24 percent and that of households with childless married couples 21 percent.

Another factor behind the rising interest in smaller homes is the emerging culture of placing substance over appearance.

Jeon Sang-in, an environmental science professor at Seoul National University who published the study “Addicted to Apartments,” said, “In Japan, middle managers in Tokyo usually live in apartments of around 100 square meters but those in Seoul live in apartments of around 132 square meters, meaning a bubble has formed in the lives of Koreans. Recently, however, the bubble has gradually decreased as more Koreans are putting substance on the front burner.”

Many Koreans in their 50s are also willing to live in smaller apartments after retirement. Park Hap-soo, director of the real estate department of Kookmin Bank’s PB Center, said, “In the past, many people believed home size represented their social status. Such a perception has gotten weaker, however, and more people are stressing actual benefits.”

Professor Jeon added, “The preference for smaller homes will be more notable since young potential home buyers in their 20s and 30s want to buy smaller homes and make them cozy places instead of purchasing unreasonably larger homes.”

hyejin@donga.com aryssong@donga.com