Seoul apartment transactions fell about 36% in a single month, and signs are emerging that the sales freeze will drag on. Outlying districts of Seoul, where buyers rely heavily on loans, are feeling the brunt of rising interest rates, while in the Gangnam area, home to high-priced apartments, a tax overhaul has raised the burden on owners. Together, the two forces have deepened a wait-and-see mood among buyers.
Seoul apartment transactions in August totaled 3,466, excluding deals by public institutions, down 36.6% from 5,465 in July, according to the Ministry of Land, Infrastructure and Transport's actual transaction price disclosure system on the 29th. That is less than half the monthly totals in April and May, when transactions topped 8,000 each month. September transactions stood at 1,387. Because deals must be reported within 30 days of signing, that figure is likely to rise, but any recovery is expected to be limited.
Applications for land transaction permits in Seoul, a leading indicator of transaction volume, have dropped sharply. Applications fell 65.1% to 3,547 in August from 10,165 in April, according to the Saeol civil affairs portal, a government e-filing system for permit applications. September applications came to 3,853 as of the previous day, roughly in line with August, prompting observers to say the chances of a sharp rebound in transactions are slim.
Gaps between districts have also emerged as overall transactions shrink. Outlying districts still accounted for the largest volumes. Among September land transaction permit applications, Nowon-gu led with 479, followed by Gangseo-gu with 251, Eunpyeong-gu with 244, Dobong-gu with 237 and Guro-gu with 219. By contrast, applications in the three Gangnam districts, where high-priced apartments are concentrated, fell 70.1% from April. The decline is attributed to a relatively larger impact from lending restrictions, compounded by heavier taxes following the overhaul.
Prices are slipping in the Gangnam area, where the tax burden has grown. A seller of an 84-square-meter unit at Gaepo Xi Presidence in Gaepo-dong, Gangnam-gu, initially listed the home at 4 billion won ($2.9 million) but cut the price to 3.47 billion won and closed the deal in early September, according to local brokerages. An official at one brokerage near the complex said buyers with cash can purchase homes 500 million to 600 million won below market through distressed sales. "Even when a distressed listing comes out, only 200 million won in loans is available, so no one can make up their mind easily," the official said.
Brokers in outlying districts also say buying demand has slowed after prices jumped in a short period. An official at a brokerage near Sanggye Jugong Complex 11 in Sanggye-dong, Nowon-gu, said a home that used to sell for 500 million won is now being asked at 700 million won, making it uncomfortable even to broker the deal. "With rates rising and prices up more than 30% in five months, people are trying not to overstretch," the official said.
Against this backdrop, the government's decision to extend the grace period on owner-occupancy requirements for rented homes within land transaction permit zones through the end of next year is expected to be another variable. When a household that does not own a home buys a house occupied by a tenant, the occupancy requirement is deferred until the end of the tenant's renewed lease. With the measure set to take effect next month, more listings that had been difficult to sell because of owner-occupancy obligations in permit zones may come to market. Still, some in the field say transactions are unlikely to revive significantly. An official at a brokerage in Nowon-gu said loans to cover the return of a jeonse deposit are capped at 100 million won for homes with tenants, making purchases effectively out of reach for all but cash-rich buyers. "The impact on transaction volume will not be large," the official said.
Experts expect the sales freeze to persist across Seoul for some time. Yang Ji-young, a specialist at Shinhan Premier Pathfinder, said there is demand shifting to purchases in outlying Seoul because jeonse listings, a lump-sum deposit lease, are hard to find, but buyers who depend heavily on loans cannot chase prices higher while rates are rising. "In the Gangnam area, listings temporarily increased after the tax overhaul and deals were done mostly on distressed sales, but once that supply is exhausted, transactions will not come easily," Yang said.
