Regulation Could Worsen Bipolarization of Propery Market

“With the end of the moving season this spring, there is virtually no business for real estate agents here. Whenever we hear news that prices of reconstructed apartments have gone up in Seoul’s Gangnam area, we are frustrated by the contrast in reality.”

So said Kim Jang-hyeon, the head of Mirae Real Estate in Namyangju, Gyeonggi Province.

Bipolarization of the real estate market has worsened with prices and transaction volume rising in the upscale Gangnam, Seocho and Songpa districts of Seoul while plunging in the Gangbuk district and in the suburbs of Uijeongbu and Namyangju.

According to Serve.co.kr, an online provider of real estate information, apartment prices have risen 8.9 percent in Gangnam and 10.68 percent in Songpa from the end of last year. While prices in Seocho rose 4.89 percent and those in Yangcheon grew 5.72 percent, values have declined in Gangbuk (down 2.77 percent), Dongjak (2.18 percent) and Seongbuk (1.56 percent).

In Gyeonggi Province, price declines have been relatively minimal in Seongnam’s Bundang district (minus 0.01 percent) and Pyeongchon New City (minus 0.74 percent), yet the drops have been bigger in Gwangju (minus 4.34 percent) and Dongducheon (minus 5.89 percent).

A significant price gap also exists between reconstructed and existing apartments, with the former rising 20.28 percent on average in Seoul from last year and the latter rising just 1.28 percent.

Transaction volume has also differed greatly between districts. While apartment transaction volume between January and May have largely increased in Gangnam (up 83 percent) and Seocho (87 percent) from the same period last year, those in Seoul’s Nowon (minus 65 percent) and Dobong (minus 72 percent) districts, Uijeongbu (minus 85 percent) and Pocheon (minus 77 percent) have plummeted.

Under this situation, the government’s shift to tighten regulations on loan to value ratio for housing in the Seoul metropolitan area has invited a backlash from residents in areas not benefitting from real estate inflation.

A 39-year-old resident of Namyangju said, “I have put up my apartment (152 square meters) for sale at 260 million won (208,000 U.S. dollars), 70 million won (56,000 dollars) below market price, since November last year to move to Seoul for my children’s education. But, I have yet to hear from a potential buyer.”

“I’m worried that prices could fall further because of the government’s decision, which seems to ignore that home prices have only gone up in certain areas, such as Gangnam.”

Hahm Yeong-jin of Serve.co.kr said, “Amid worsening bipolarization in the real estate market between regions and products, the government’s decision to tighten loan regulations have only taken away the minimal steam in the market. Unfortunately, it has dampened markets in regions already suffering from slow business.”

“If the government introduces additional policies to regulate the market, regions that have not benefited from recent price hikes will face a more severe slump.”

aryssong@donga.com hyejin@donga.com