Buying demand in Seoul's apartment market has contracted rapidly since August, deepening signs of a transaction freeze. Home prices had held their upward trend even under the tight mortgage rules in place since October last year, but the government's Aug. 3 tax overhaul drove a wedge into buyer sentiment just as fatigue from the earlier run-up was building. Analysts also point to anxiety over higher benchmark and mortgage rates, with U.S. Treasury yields entrenched above 5%, as a factor behind the weakening demand.
Seoul's apartment buyer-superiority index stood at 71.7 as of Sept. 28, down 3.5 points from the previous week, according to weekly apartment data from KB Real Estate, a unit of KB Kookmin Bank, released on the 3rd. The index had climbed as high as 89.2 in mid-July but fell for successive weeks from August, retreating 17.5 points over two months. Compiled from surveys of local brokerages on a scale of 0 to 200, a reading above the 100 baseline means buyers outnumber sellers.
The epicenter of the pullback is the Gangnam area. The index for the 11 districts south of the Han River registered 82.1 in mid-July but sank to 64.4 at the end of last month. The share of brokers reporting that buyers outnumber sellers had exceeded 10% through July but dropped to 9.88% in the first week of August and to 7.6% in the final week of September. The index for the 14 districts north of the river rose to 97.2 in mid-July, approaching the 100 baseline, then declined gradually to 79.9 last week, falling below the 80 line.
As sentiment has turned, transaction indicators have frozen as well. KB Real Estate's index of apartment sales activity in Seoul stands at just 13.0, with 87.7% of brokerages describing the market as quiet and only 0.8% calling it active. The index for the 14 northern districts, which hovered above 20 through July, slipped to 15.2 last week.
KB Real Estate's weekly change in Seoul apartment sale prices also slowed sharply, to 0.16% as of Sept. 28 from 0.34% in mid-July. The gain in the 11 Gangnam-area districts narrowed to 0.07% at the end of September from 0.27% in July, leaving prices virtually flat. The 14 northern districts posted 0.26% last week, a relatively high level, but the pace has clearly eased from 0.43% in July. Seoul's apartment price index reached 109.7 last week, maintaining its upward course, though the slope of the increase has flattened noticeably.
Experts attribute the weaker sentiment to the return of a rate-rising cycle at a time when a year of strict mortgage rules has limited buyers' ability to raise funds. The Aug. 3 tax package, which centers on raising holding taxes on expensive homes and trimming tax benefits for long-term owners, hit high-priced reconstruction complexes in the Gangnam area directly, another reason buyers in Seoul have shifted to the sidelines.
"Demand for apartments under 1.5 billion won [about $1 million] is still strong because the shortage of rental housing in Seoul is severe, but as prices for expensive Gangnam homes turn down, worries about a market slump are starting to surface," an official at a brokerage in Seongbuk District said. "Even among those waiting to buy, more are thinking that waiting a bit rather than buying right now may be the cheaper path to owning a home."
