Seoul Apartment Prices Rebound

Apartment prices in Seoul are starting to rebound a year after the government announced tough measures to crack down on real estate speculation.

According to property information service Real Estate 114 on Sunday, Seoul apartment prices rose 0.15 percent last week, the steepest growth in four months. Prices have been on the rise for the last two months after flattening when the anti-speculation measures came into force.

They have been rising evenly throughout the city rather than soaring only in flush Gangnam as usual. Apartment sales have picked up apace, up 17 percent.

Kwon Dae-jung at the Korea Real Estate Society said, "The government's measures aimed at cracking down on real estate speculation have paradoxically prompted apartment prices to surge a year later."

The pattern of failure resembles the unintended consequences of the minimum wage hike. Critics say the government's crackdown on real estate speculation ignored the supply-and-demand principles of the market.

Policymakers need to either suppress demand or boost supply to stabilize prices, but tougher regulations on renovating aging apartments or building new house complexes in the capital resulted in reducing supply, while higher taxes on multiple-home owners have prompted them to put all their money into a profitable high-end apartment in Seoul rather than in the provinces.

Seoul is suffering from a shortage of apartments. According to real estate information app Zigbang, only 87 apartments were built for every 1,000 households in Seoul from 2013 to 2017. In Incheon, 67 were built and in Daejeon 77.

Trying to tame property prices in Gangnam, the government strengthened safety and other construction regulations, which sharply reduced supply. The number of permits for apartment construction in Seoul during the first half of this year plunged 30 percent on-year. Increased transaction taxes meanwhile prompted homeowners to pass their apartments to their children as gifts as an early inheritance.

Homeowners feel the government has run out of regulatory options and have started to invest in apartments again since the end of June.

Hong Choon-wook, an analyst at Kiwoom Securities, said, "Home buyers who took a wait-and-see approach have started to buy apartments again, believing that housing prices will start rising soon. Higher taxes aimed at prompting owners to sell one of their spare apartments are being interpreted by potential buyers as a signal to own one home whose price is expected to rise." Many now sell land in provincial areas to focus their investment on one luxury home in Seoul.