Sharp Cooling in Real Estate Market Spreads Through Entire Nation

The sharp cooling in the real estate market of the Seoul metropolitan area after the “10/29 housing market stabilization policies” is spreading through the entire nation.

According to the real estate industry on November 16, the early contract ratios of the apartment houses in metropolitan cities such as Busan and Taegu, which were up to 80-90 percent barely two months ago, dropped to 20 percent, showing the looming recession in the real estate market.

The early contract ratio of the apartment house built by K Corp. in Buk-gu, Teagu last month was less than 20 percent. K Corp. says it managed to raise the contract ratio up to 60 percent by receiving additional subscriptions for more than a month.

In the Busan area, where the market recently enjoyed a boom, including the sales of luxury house-and-shop skyscrapers, the atmosphere is not different.

The early contract ratio of apartment houses put on sale in Yongho-dong in mid-October by L Corp. was 40 percent and that of the ones put on sale in Unhyun-dong in late October by T Corp. was a mere 15 percent, which means that the later the sales date, the lower the contract ratio. It was surprising that there was no first-order subscriber for the apartment house in Haeundae-gu built by a local company.

The local real estate markets continued to rise since the start of the second half this year, when the large construction companies showed interest in the reconstruction apartments and house-and-shop skyscrapers in the local areas due to the government regulations focused on the Seoul metropolitan area.

But because the local real estate market is cooling due to the stabilization policies, the companies are at a loss.

Seo Jong-uk, an executive of Daewoo Engineering & Construction co., said, “The local real estate market tends to boom later and cool earlier than that of the Seoul metropolitan area. In particular, the investors seem to be distracted from the local markets after the reinforcement policies of the transfer tax and holding tax of real estate levied on those who have more than two houses were reported.”

An official of P Corp., which has been developing an apartment house in Jinhae, Gyeongnam, said, “At first we expected no serious damage to the local apartment house market because the ‘10/29 stabilization policies’ are focusing on the speculative demands, and the local markets are mainly operated by the real demands. But on the contrary, as the results come out, it is more serious in the local markets.”

Meanwhile, the total market capital of apartment houses in Seoul area dropped 1.4828 trillion won in last week, including 1.2716 trillion won of reconstructed apartments, indicating that the sharp drop in the price is picking up.

Although the rush sales order are piling, as the purchasers are assuming a wait-and-see attitude for the additional decrease in prices and as National Tax Service has launched the tax audits on the real estate agencies since last weekend, trading has stopped altogether.

Cheol-Yong Lee Chang-Won Kim lcy@donga.com changkim@donga.com