National apartment pre-sale index at 86.3, down 6.9 points from prior month

Greater Seoul and non-metropolitan areas both decline

An apartment complex in central Seoul. Photo by Lim Se-jun
An apartment complex in central Seoul. Photo by Lim Se-jun

Tightening loan regulations and uncertainty over real estate tax policy are dampening developer confidence in the pre-sale market. Seoul's apartment pre-sale outlook index fell below the benchmark of 100 for a second consecutive month in August, with negative sentiment continuing to dominate.

According to the Korea Housing Industry Research Institute, a survey of housing developers conducted Aug. 19–28 found that the national average apartment pre-sale outlook index for September came in at 86.3, down 6.9 points from the previous month. A reading above 100 indicates that more developers hold a positive outlook on pre-sales, while a reading below 100 signals that pessimists outnumber optimists.

The Greater Seoul area index fell 4.5 points to 84.0. Seoul dropped 3.4 points from 97.3 to 93.9, Incheon fell 6.5 points from 80.6 to 74.1, and Gyeonggi Province declined 3.6 points from 87.5 to 83.9. In the July survey, Seoul's index had stood at 114.3, above the 100 threshold, but it has remained below that benchmark for two consecutive months since August.

The institute said tightened loan regulations centered on the Greater Seoul area, combined with rising interest rates, have increased the burden of financing, while uncertainty over real estate tax reform and high pre-sale prices have dampened developer sentiment.

A series of loan restrictions targeting the Greater Seoul housing market has reduced buyers' borrowing capacity, heightening developer concerns about a slowdown in pre-sales. As the amount available through mortgage lending has shrunk, the financial burden on end-users — particularly for high-priced homes — has grown, adding to uncertainty in the pre-sale business.

The government capped mortgage loans for homes in the Greater Seoul area and regulated zones at 600 million won ($447,000) under its June 27 measures last year, then tightened restrictions further under its Oct. 15 package. Current mortgage limits stand at 400 million won for homes priced between 1.5 billion won and 2.5 billion won, and at 200 million won for homes priced above 2.5 billion won.

Trend in the apartment pre-sale outlook index. [Provided by Korea Housing Industry Research Institute]
Trend in the apartment pre-sale outlook index. [Provided by Korea Housing Industry Research Institute]

Outside the Greater Seoul area, a buildup of unsold units weighed on sentiment, pushing the non-metropolitan index down 7.4 points to 86.8. All cities and provinces except five — Busan, Daegu, South Chungcheong Province, Daejeon and Ulsan — posted month-on-month declines.

Analysts attributed the drop to a combination of persistently weak housing demand outside the capital region and rising interest rates that have added to financing burdens. About 85 percent of the roughly 29,000 completed but unsold units nationwide as of July were concentrated outside the Greater Seoul area.

The steepest declines were recorded in South Jeolla Province, which fell 28.9 points from 88.9 to 60.0; Jeju, down 25.0 points from 100.0 to 75.0; South Gyeongsang Province, down 18.2 points from 100.0 to 81.8; Gangwon Province, down 11.7 points from 91.7 to 80.0; Gwangju, down 11.1 points from 111.1 to 100.0; North Chungcheong Province, down 11.1 points from 100.0 to 88.9; North Jeolla Province, down 10.0 points from 100.0 to 90.0; North Gyeongsang Province, down 6.7 points from 106.7 to 100.0; and Sejong, down 0.6 points from 92.9 to 92.3.

Four regions posted gains: Busan rose 10.2 points from 72.2 to 82.4, Daegu climbed 8.1 points from 78.3 to 86.4, South Chungcheong Province edged up 1.3 points from 83.3 to 84.6, and Daejeon gained 0.6 points from 93.8 to 94.4. Ulsan held steady at 100.0, unchanged from the previous month.

The institute said how the pre-sale market performs going forward remains to be seen, depending on the progress of government measures to clear unsold inventory in regional areas and the implementation of housing supply policy.

Meanwhile, the September outlook indexes for pre-sale prices, pre-sale volume and unsold volume all rose. The pre-sale price outlook index climbed 1.2 points from the previous month to 108.8, reflecting continued upward pressure on construction costs including materials and labor.

The pre-sale volume outlook index rose 9.0 points to 97.1, reflecting expectations that schedules delayed over the summer would resume with the arrival of the autumn pre-sale season. Some of the gain also reflected optimism that expanded financial support for developers included in the Aug. 13 housing supply package would improve business conditions. However, the index still fell short of the 100 benchmark amid lingering concerns about a market contraction.

The unsold volume outlook index rose 14.9 points from the previous month to 105.9. The institute said demand concerns stemming from tighter loan regulations were weighing on the Greater Seoul area, while a persistent backlog of unsold units was the key drag outside the capital region. The number of unsold homes nationwide has risen for three consecutive months.


shy@heraldcorp.com
hope@heraldcorp.com