Seoul Home Deals Hit Yearly Low as Tax Reform Looms

*Editor's Note: 'AI PRISM' (Personalized Report & Insight Summarizing Media) is an "artificial intelligence (AI)-based customized news recommendation and summarization service" developed with support from the Korea Press Foundation. It selects and provides six customized news items by reader type.

1. Wait-and-See Stance Ahead of Tax Reform… Land Permit Applications Down 15% Daily

Key Summary: Seoul apartment sales in June totaled 5,065 transactions, the lowest this year, a figure that plunged more than 40% compared with April and May. Land transaction permit applications in July, a leading indicator of actual transactions, averaged 176.3 per day, down 14.7% from June (206.6). In particular, Songpa-gu declined about 23% from around 12 to 9 per day, with the contraction notable in areas densely populated with high-end complexes. In the market, some interpret this as an intensified wait-and-see stance among buyers seeking to gauge the level of property holding tax burden, amid the government's tax differentiation policy, the raising of the fair market value ratio, and the possible reduction of long-term holding special deduction benefits. Concerns are also being raised that jeonse and monthly rent shortages could worsen as prices continue to rise for 76 consecutive weeks (up 6.03% cumulatively this year) while only transactions contract.

2. "Earn 5 Million Won a Month, Spend 2.3 Million on Debt"… People Buckling Under Loan Repayment

Key Summary: Seoul's housing affordability index (K-HAI) in the first quarter this year was 179.3, surging 14.2 points from the previous quarter to the highest level since the end of 2022. A household with a median income of 5 million won per month buying a median-priced home in Seoul (1.04 billion won as of June) must spend about 2.3 million won each month, or roughly 46% of income, on loan principal and interest repayment. An index of 100 represents an appropriate repayment level, and Seoul reaches 1.8 times that, the only region nationwide to exceed 100. With the Bank of Korea raising the base rate by an additional 0.25 percentage point this month, the purchase burden is expected to grow further, while the July housing price outlook consumer sentiment index (CSI) hit 127, the highest in about five years since September 2021, indicating expectations for further increases remain.

3. Bigger Homes Are Cheaper… Small-Apartment Strength Grows Clearer

Key Summary: As demand valuing location over area spreads, reversal cases where small units sell for more than mid-to-large ones within the same complex are emerging one after another. A 34㎡ unit in Gayang 2 Complex in Gangseo-gu renewed its record high at 738 million won this month, jumping more than 100 million won above the 2022 peak (630 million won), while a 42㎡ unit at Hillstate Classian in Yeongdeungpo-gu set a record high at 1.125 billion won. Analysts say small-unit strength is intensifying as demand to reduce area and choose superior locations within the same budget grows due to lending regulations, compounded by the rise in one- and two-person households. Converted to price per 3.3㎡, a 49㎡ unit at Helio City in Songpa-gu was found to be about 50 million won more expensive than a 110㎡ unit, confirming the small-unit premium in figures as well.

4. Cutting Limits and Raising Rates… Banks' 'Overdraft Accounts' Top 5% One After Another

Key Summary: Major commercial banks are reducing overdraft account limits while raising rates, rapidly increasing the cost of credit loans. As of last month, Shinhan Bank's average overdraft account rate was 5.25% per year, Hana Bank 5.08%, and Woori Bank 5.03%, all crossing the 5% line, while KB Kookmin Bank has uniformly lowered its overdraft account limit to 50 million won. Credit loan rates are also rising, with NH NongHyup Bank's rate for low-credit borrowers (600 points or below) surging 1.07 percentage points from 7.29% to 8.36% in a month. As forecasts emerge that lending rates across the financial sector are likely to rise rapidly if the Bank of Korea raises the base rate further next month, the cost of using leverage is expected to grow larger.

5. 2,800-Home 'Forest-Adjacent Apartments' to Rise in Banghak-dong

Key Summary: As the Seoul Metropolitan Government finalized the Rapid Integrated Planning for the housing redevelopment project in the 638·641 area of Banghak-dong, Dobong-gu, the creation of a large complex of up to 35 stories and a total of 2,799 units was made official. The Class 2 general residential area, which had been capped at seven stories or below due to proximity to the Bukhansan altitude district, was upgraded two levels to Class 3, securing a floor area ratio of 270% or more, and the special architectural district exemption was applied to allow some buildings to be built five stories higher than the original plan. Linked to the Ui-Sinseol Line Banghak Station extension plan, transportation conditions are set to improve, while street activation will also be encouraged through the arrangement of street-facing commercial buildings along Dodang-ro. As the project residents have pursued since 2021 was finally selected for Rapid Integrated Planning, investors' attention is focused on the pace of subsequent procedures.

6. Lending Regulations Push 120,000 Into Private Loans… Usage Doubles

Key Summary: A survey by the Korea Inclusive Finance Agency estimated that up to 119,000 low-credit borrowers moved to illegal private financing last year, about double the level of a year earlier (up to 61,000). The amount of illegal private loans used also surged nearly twofold to up to 1.55 trillion won from the previous year (up to 790 billion won), with usage mostly for basic living expenses (41.0%) and rolling over debt (26.1%). As the loan approval rate for the bottom 50% of low-credit borrowers at lending firms fell to 9.1%, analysts diagnose that a structure has formed in which those pushed out even at the final stage of institutional finance are driven to illegal private financing. The Korea Inclusive Finance Agency said it is "the result of stronger DSR regulations combined with an economic downturn," and proposed establishing a policy finance safety net and introducing a Korean-style borrower self-control system.