Rising home prices in South Korea have been a contentious issue for years, and so it's
almost with a sense of disbelief that homebuyers have watched prices soar during the pandemic.
That comes despite efforts by the government over the past couple of years, which include
26 rounds of policies to cool down the market. People in other countries have seen something
similar in pandemic. So what's driving prices higher, both in Korea
and around the world? Our Kim Sung-min has been looking into the
issue for us, and joins us this afternoon here in the studio.
Sung-min, good to have you back.
Good afternoon Devin.
The Moon administration in South Korea got onto this issue several years ago... as young
people especially felt that owning a home was hopelessly out of reach for them.
But then in the pandemic, prices have risen even higher.
Give us a sense of just how expensive homes are in Korea and how big the rise has been.
Devin, before we start I'd like to say that when we discuss the price hikes in the South
Korean housing market,... its more accurate to limit that to the capital area.
The house price gap between the greater Seoul area and the rest of the country is huge,
and most of the market frenzy has been concentrated in and around the capital.
According to a report by KB Bank... the price of apartments in the capital area during the
first half of this year,... increased by almost 13 percent the biggest rise in 19 years.
And that has been driven mostly by the high-end houses.
Last month,... the average price of the top-twenty percent of homes reached over 970-thousand
dollars. That's a jump of around 30 percent compared
to a year ago. To give you a better picture, I've visited
one of the most expensive apartments in Banpo, Seoul.
Here, just last month,… a home with 84-square-meters of usable space was sold for 3-and-a-half
million U.S. dollars that's the highest price on record for an apartment of this size.
If we break down the total space, that works out at more than 30 thousand dollars for 1
square meter.
So, for our American viewers used to square feet, that's an astonishing 28-hundred dollars
a square foot. About 10 times the price you'd find in a medium sized American city. And
of course the U.S. and many other countries have seen home prices rise too. The median
American home is up almost 25 percent from a year ago.
Right, house prices are an issue all around the world.
When we take a look at the data from the Bank for International Settlements,... global property
prices rose by 4 percent on year in the fourth quarter of 2020 when the pandemic was raging
across borders. And the surge was more apparent in advanced
economies. Real house prices across the OECD rose by
7 percent on average from the fourth quarter of 2019 to the fourth quarter of 2020.
And as you can see from the graph, that was the fastest growth over the past two decades.
Some of the hottest markets were New Zealand, with real prices rising 13 percent followed
by Canada at 11 percent. The U.S. also saw price hikes of 8 percent
and the UK and Europe both 6 percent. In that term,... South Korea's rise seemed
relatively mild standing at 3 percent, but that's partly because it was buffered by the
regions outside the capital area. The BIS noted that "Although a rise in house
prices during a recession is not unprecedented [...] recent increases have been unusually
large."
Okay, so home prices are rising all around the world. I know in America there was a lack
of inventory on the market. Also new homes cost more right now because of higher lumber
costs, and that pushes up the price of new homes too.
But I know there are some deeper reasons for this phenomenon.
Help us understand why prices are rising like this.
Experts have largely given two reasons to explain the surges.
The first would be how the pandemic has driven down interest rates to historic lows.
Policy makers around the world have cut interest rates by two percentage points on average
last year,... which in turn reduced the cost of mortgage borrowing.
And that monetary policy to boost the economic recovery,... combined with trillions of dollars
in fiscal stimulus,... led demand to outstrip supply in many countries just like here in
South Korea.
"After the pandemic because Korea wanted to reduce the shock from the pandemic... Korea
along with most other countries carried out expansionary monetary policy with low interest
rates and high liquidity and that's been ceding into the real estate market as well as stocks
market, cryptocurrency market..."
So it makes sense that if it's easier to borrow, prices are going to rise to reflect that.
But there's more to the pandemic story than low interest rates. What else is going on?
Another reason that many experts mention is the increase in demand.
With the lockdowns and the reduced opportunities to spend,... those who managed to keep their
jobs turned to property,... and to be more precise,... a nicer house.
As the COVID-19 pandemic led more people to work from home,... homes became their offices,...
schools and gyms. So while the demand has increased,... the
supply couldn't keep up with that in many countries including the U.S.
"Housing production has been unusually slow even coming out of the crash. So it's been
at low levels and there are different reason for it. Some of it is it's become more expensive
to build houses. Lumber prices have been gone up… shortages of labor. So it was the case
even before this that house prices were going faster than inflation but not quite as much."
Right. It does seem that people who need to buy are going to keep buying. So it would
be nice to know what things will look like in the years to come.
What factors are working there, and what's the trend look like?
No one can really predict what's going to happen exactly,.... but we can consider various
factors like potential rate hikes to at least guess the scenario.
Experts say the overheated market is bound to fall as the housing bubble pops.
"House prices will not go up forever. By 2025,... the interest rates will be higher. Whether
it is the U.S. or Korea,... the rate will grow by some 2-point-2 percentage points through
the next three years. Then the tapering will come and liquidity will be reduced. The house
prices by then will overshoot. And when the supply increases with the current government
plans,... there's a high chance that the price will start falling.
"Obviously the big question is,… is it going to be the bubble going to revert back to some
sort of average? The bets are on the latter of course the former is a risk[....]The markets
are betting that the inflation will go down. That it won't be as high as it is now. Because
if they weren't making that bet, interest rates would be higher. And they're just not
high enough to be consistent with expectations of inflation.
Okay, so there are some temporary factors at play and some longer-term factors.
If prices do keep rising for a few more years, they might not rise as fast, and that would
be a relief for those hoping to get onto the property ladder.
Sungmin, thank you for your very thorough reporting today.
Thank you.