Seoul apartment transactions have stayed depressed after falling by more than half in three months, deepening what local agents call a transaction cliff. Analysts attribute the slump to a combination of lending curbs, rising interest rates, a tax overhaul and the sharp run-up in apartment prices this year, which has pushed buyers to the sidelines. The government has extended a grace period on owner-occupancy requirements for leased homes in land transaction permit zones through the end of next year, a step that could lift deal volumes somewhat, though few expect a return to levels seen before the capital gains tax surcharge grace period expired.
Seoul apartment transactions totaled 3,466 in August, 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, excluding deals by public institutions. 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 sales must be reported within 30 days of a contract, the September figure will rise, but the recovery is expected to be limited.
Applications for land transaction permits in Seoul, a leading indicator of transaction volume, have dropped sharply. Filings fell 65.1% to 3,547 in August from 10,165 in April, according to the Saeol online civil service portal. September filings stood at 3,853 as of the previous day, roughly in line with August, suggesting little chance of a sharp rebound in deal volumes.
Transactions declined across all districts, but the pace varied. Outlying areas with relatively lower prices still accounted for the most deals. By September land permit filings, Nowon District led with 479, followed by Gangseo with 251, Eunpyeong with 244, Dobong with 237 and Guro with 219. By contrast, filings in the three Gangnam districts, where high-priced apartments are concentrated, fell 70.1% from April. Lending curbs weigh more heavily there, and the tax overhaul has added to the tax burden, driving transactions lower.
Prices are also being marked down in the Gangnam area, where the tax overhaul has raised holding and capital gains tax burdens. According to local brokerages, one seller of an 84-square-meter unit at Gaepo Xi Presidence in Gaepo-dong, Gangnam District, initially listed the home at 4 billion won ($2.9 million) and closed a deal in early September at 3.47 billion won ($2.5 million). An agent at a brokerage near the complex said: "Buyers with cash can pick up distressed listings at discounts of 500 million to 600 million won or more. Even when a distressed listing comes out, only 200 million won in loans is available, so no one is willing to commit."
Agents in outlying parts of Seoul also say demand has cooled after prices jumped in a short period. An agent at a brokerage near the Sanggye Jugong 11 complex in Sanggye-dong, Nowon District, said: "A home that used to go for 500 million won is now asking 700 million won, so it is uncomfortable even to broker it. Prices have climbed more than 30% in five months while rates are rising, so people are not stretching themselves."
Against that backdrop, the government's decision to extend the grace period on owner-occupancy requirements for leased homes in land transaction permit zones through the end of next year is expected to be another variable. When a non-homeowner buys a home occupied by a tenant, the owner-occupancy grace period is recognized through the end of the tenant's renewed lease. The measure takes effect next month, raising the prospect of more listings coming to market that had been hard to sell because of owner-occupancy obligations in permit zones. Still, agents on the ground doubt deals will pick up much. An agent at a brokerage in Nowon District said: "For listings with a sitting tenant, loans to repay the jeonse deposit (a lump-sum, interest-free rent deposit) are capped at 100 million won, so realistically only buyers with a lot of cash can purchase. The impact on transaction volumes will not be large."
Experts expect the transaction cliff to persist across Seoul for some time. Yang Ji-young, a specialist at Shinhan Premier Pathfinder, said: "In outlying Seoul, jeonse listings are hard to find, so some of that demand is shifting to purchases, but with rates rising, buyers who depend heavily on loans cannot chase prices higher. In Gangnam, listings rose temporarily after the tax overhaul and some deals went through on distressed listings, but once that supply is used up, deals will not come easily."
