Soaring Seoul Apartment Prices: Can Government Policies Stabilize the Market?

Seoul's apartment prices have been on a continuous rise for 18 weeks

Seoul's apartment prices have been on a continuous rise for 18 weeks, fueling concerns of a housing market overheating. While the government has pledged to implement various policies to stabilize prices, experts suggest that achieving short-term relief may be challenging. This blog explores the causes behind the surge in Seoul's apartment prices, the government's response, and future outlook.

Recently, the Seoul apartment market has been experiencing an extended upward trend, with prices rising for 18 consecutive weeks. According to the Korea Real Estate Board, the average apartment sales price in Seoul increased by 0.3% compared to the previous week, marking the highest growth since September 2018. Additionally, rental prices have risen for 62 weeks in a row, reflecting the market's overheating conditions.

One key factor driving this price surge is the government's economic stimulus measures. Since 2022, the current administration has implemented policies such as increasing the loan-to-value (LTV) ratio and relaxing regulations to stimulate housing investment. Special loan programs for young adults and first-time homebuyers, including the "Special Mortgage Program" and "Newborn Special Loan," have significantly boosted liquidity in the market. However, supply shortages remain a critical issue. The government planned to supply 190,000 housing units in Seoul from January last year until the end of this year, but only 35,000 units have been provided so far, which is just 18.4% of the target.

In response to these issues, the government has decided to hold weekly meetings of the "Real Estate Market and Supply Situation Inspection Task Force" and plans to announce additional measures in August. The key measures will include securing more land for development in the metropolitan area, streamlining urban redevelopment procedures, accelerating housing supply in the third new towns, and increasing non-apartment housing options.

However, experts in the real estate market predict that these measures alone may not be sufficient to curb the current price surge. The housing supply from the third new towns is expected to begin around 2026, leaving a gap in the short-term supply. Additionally, the delay in implementing the second phase of the Stress DSR (Debt Service Ratio) regulations could lead to increased demand for loans.

Baek Sae-rom, a senior researcher at Real Estate R114, anticipates that loan demand will intensify as banks prepare for tighter lending conditions before the September implementation of the Stress DSR phase 2. Meanwhile, Lee Eun-hyung, a researcher at the Korea Construction Policy Institute, suggests that while the upward trend in apartment prices will likely continue, it may not reach the levels seen during the Moon Jae-in administration. He notes that prior to that administration, there was a prolonged period of declining property prices.

The ongoing rise in Seoul apartment prices signals an overheating housing market and underscores the need for effective government intervention. To successfully stabilize prices, a combination of increased housing supply and balanced lending policies will be crucial. Monitoring the government's forthcoming measures and the market's response will be essential in navigating these turbulent times.