International Law

Seoul Housing Bubble Deflating: Hope For Soft Landing

It looks as if the bubble is popping, or at least deflating somewhat, in the Seoul housing market. I don’t know if that’s a good thing or a bad thing. Prices are definitely too high, but of course as a homeowner (thankfully, not a highly-leveraged homeowner) I’d rather the prices remained steady.

The Maeil Kyungjae reports that while I’ve been bleating about Korean apartment prices being too high, they’ve started falling. At least, in neighborhoods better than mine.

Here’s some select bits I’ve translated from Korean to English for the benefit of Korea Law Blog readers:

Where is the “Floor” for Expensive Apartment Prices in the “Bubble Seven”?
Medium- to Large-Size Kangnam Apartments Projected to Drop Another 10-20%

Chart:

[Prices compared Nov. 2006 to June 2008]

Daechi-dong Mido 2-cha Apts (181.8 sq. m.): W3.05 billion -> W2.45 billion (-W600 million)

Daechi-dong Gaepo Woosung 1-cha Apts (214.8 sq. m.): W3.7 billion -> W3.15 billion (-W550 million)

Bundang Geumgok-dong Athena Rex (218 sq. m.): W1.55 billion -> W1.29 billion (-W260 million)

Mok-dong Shinshi Gaji #4 Complex (181.8 sq. m.): W2.05 billion -> W1.625 billion (-W420 million)

“It is difficult to foresee price increases unless there is some striking news like a change to the debt-to-income ratio regulations,” said UNR Consulting Representative Director Sang-Eon Park. “Shrinking demand means an additional 10-20% price decline seems possible for medium- to large-sized apartments.”

I have to believe that eight-buck-a-gallon gas (W2000 per liter)—and Koreans’ inexplicable preference for bloated black sedans that get 15 mpg—has something to do with these falling housing prices. The “Bubble Seven” story reports that satellite-city apartments in Bundang and Yongin are off 15-20% in June. My law partner Doil and I have had a project that has required us to drive out to the Kyeonggi Province city of Kwangju, and the roads have been oddly clear—Doil says it’s like being Will Smith in “I Am Legend” (except that we’re in an Equus—blech).

The Doctor Housing Bubble blog has already examined how gas prices and the stark increase of commuting cost has ravaged California’s exurbs. And that’s at just four bucks a gallon. It’s my belief that the Korean housing bust will be felt most acutely in Bundang, Yongin, Ilsan, Pangyo, and the other satellite cities of Kyeonggi Province, whose residents must commute to Seoul.

Anyway, back to Seoul… Strangely, though, while the prices of these “large” (which is, of course, a relative term—181.8 sq. m. probably yields only 1500 sq. ft. of usable living space, assuming a 75% ratio) apartments apparently drop by such large amounts, the cost of renting in Kangnam—and other areas perceived to have good “neighborhood facilities” (i.e., cram schools)—is going up:

In particular, in the Kangnam’s Daechi-dong and Dogok-dong, which are swimming in hagwon, there has been a rush of inquiries from apartment hunters in advance of the summer school holidays.

Chonsei lease price for a 112 sq. m. apartment in the Daechi-dong Mido 1-cha apartments has gone up by W10 million to the W305-375 million range, while an 85 sq. m. “A"-type apartment at Dogok-dong’s Dogok Rexle has gone up by W5 million to between W325 million and W340 million.

It’s much the same in Nowon-gu’s Chunggye-dong, which is said to be the “Daechi-dong” of the Kangbuk area.

The Konyeong 2-cha apartments, where the neighborhood is chockablock with hagwon, the popular 92 sq. m. apartment lease price has advanced by W22 million to reach the W155 million level.

Furthermore, the 105 sq. m. apartments, which share popularity with the 92 sq. m. size, are also transacting W15 million higher, at W170 million.

Summer “vacation”, what a cruel, cruel lie that is! In Korea, it’s just eight extra hours of cram school education.

I don’t send my children to hagwons (other than a taekwondo class, which is mainly just for health) because I think Korea’s cram school environment is cruel to children. Also, since I spend so much on tuition at the Yongsan International School of Seoul, I don’t actually have any money left over to send them to hagwon even if I wanted to do so.

Still, based on this weekend’s reports, I know what to do to help maintain or increase the price of my own (thankfully close-in) apartment: Open a hagwon—or, better yet, open two of them right next door to each other.

Full post as published by Korea Law Blog on June 15, 2008 (boomark / email).