Since taking office, the administration of Lee Jae-myung has signaled a clear intention to stimulate the stock market. For the market to thrive, liquidity and transactions are essential. Revisions to commercial law, the abolition of the financial transaction tax, and expectations surrounding retirement pensions have led to an influx of liquidity into the stock market, opening the door for trading.
In contrast, the real estate sector has faced a different reality. The government has indicated its intention to end the era of making money through real estate, simultaneously reducing both fuel and oxygen to prevent further spread of speculation. Unlike the past, where excessive taxation merely built market resistance, the current approach tightens liquidity through loan restrictions and curtails transactions via increased capital gains taxes and land transaction permits.
The plan to position stocks as an alternative asset to real estate has seen some success. Speculative transactions in Gangnam have noticeably decreased, leading to an increase in urgent sales and a temporary drop in home prices in the area. Notably, the shift in approach—moving away from solely relying on taxes to include finance and supply—has been commendable. In stock market terms, it has effectively halted the short-term surges of overheated stocks, resulting in diverging trends between the two markets.
KOSPI Hits 8000, Gangnam Experiences Transaction Cliff
While the KOSPI is led by major stocks like Samsung Electronics and SK Hynix, the real estate market's equivalent is the Gangnam area. Over the past year, while the stock market leaders surged with trading volume, Gangnam's three districts moved in the opposite direction. Loan regulations have restricted buyers' access to funds, increased capital gains taxes have diminished sellers' incentives, and land transaction permits have limited investor entry. The number of apartments for sale in Seoul has decreased by about 25% compared to a year ago, with Gangnam showing a trend of urgent sales being absorbed first, followed by a stabilization of asking prices.
In stock market terms, Gangnam resembles a leading stock with depleted trading volume rather than a suspended one. Sellers are constrained by taxes, while buyers are hindered by loan and permit restrictions, resulting in thin transaction volumes. In a market with limited supply, even minimal transactions can prevent asking prices from dropping easily. This explains why Gangnam began to show signs of recovery after urgent sales were absorbed in May, just before the end of the grace period. However, a rebound without sufficient transaction volume cannot be definitively seen as a trend reversal.
Average price increases in Seoul do not fully capture the market's true condition. Rather than collapsing under pressure or flooding the market with panic sales, some homeowners have opted to withdraw their listings and hold firm. As the grace period for increased capital gains taxes approaches its end, urgent sales were absorbed first, and after the end of the grace period, the reduced supply led to a rise in asking prices.
Ultimately, Gangnam's three districts resemble high-quality stocks that have not easily succumbed to demand despite repeated regulations. The current transaction cliff appears more as a correction phase due to external factors rather than a fundamental deterioration. While transaction volumes in Gangnam have dwindled, market demand has not disappeared.
Real Estate Demand Persists Despite Stock Market Dynamics
This is where real estate diverges from stocks. In the stock market, reduced liquidity and trading quickly cool off overheating. However, in real estate, there remains genuine demand from buyers. The liquidity that has dried up in Gangnam has circulated into areas outside of regulations. With trading restrictions in place for the leading stock of Gangnam, money has not vanished but has returned to stocks free from regulations.
The first area to attract this circulating demand is Dongtan in Hwaseong. Not classified as a regulated area under the 10-15 measures, it has relatively loose requirements for actual residence, taxes, and loans, leading to a 112% surge in apartment transactions in Dongtan New Town in the first quarter compared to a year ago. However, it cannot be viewed solely as a speculative theme stock. It is closer to a fundamental circulation driven by performance expectations from the semiconductor belt, anticipation of the GTX-A opening, and a 1.5% internal loan liquidity. Reports indicate that demand from workers in semiconductor companies like Samsung Electronics and SK Hynix, along with the availability of internal loans, has supported the buying momentum in Dongtan.
Not all demand that has been stifled in Gangnam has shifted entirely to non-regulated areas like Dongtan. Some buyers have postponed purchases and remained in the Seoul rental market. While waiting for purchases, demand has stayed in the rental market, leading to a reduction in rental listings due to the actual residence requirements and the conversion of rental properties into sales. In the second week of May, Seoul's average rental prices rose by 0.28%, marking the highest increase in about 10 years and six months since November 2015, while rental listings decreased by 23.5% over three months.
Focus on Supply and Transactions Rather Than Prices
So, what should be the focus? The transaction cliff identified earlier reflects the current market's strength, while supply indicates the strength for the next cycle. Just as stock investors look at trading volume and supply rather than indices, real estate should also focus on transactions and supply rather than prices. However, supply is dwindling. This year, the number of apartment move-ins in Seoul is expected to be around 20,000, half of previous years, and housing permits in the first quarter have plummeted by 62%, from 14,966 units to 5,632 units over the past year.
Permits are a leading indicator showing supply capacity three to five years down the line, not immediate move-ins. The combination of this year's shortage of move-ins and a sharp decline in permits indicates that the current rental crisis and future supply gaps are accumulating. The direction to resolve issues through supply is correct, but the challenge lies in the pace. While a promise of 1.35 million units in the metropolitan area by 2030 has been made, it will take time for the market to feel the impact of this supply.
Liquidity has not spread uniformly. Just as major growth stocks and neglected stocks diverge, core areas, industrial belts, and peripheral regions have charted different paths. The nationwide apartment quintile ratio widened to a record high of 12.8 times by the end of last year. Additionally, interest rate burdens remain. While interest rates serve as discount rates in stocks, they represent monthly repayment amounts in real estate. If regulations are lifted or interest and loan conditions change in a supply-depleted state, the pent-up demand for purchases could push asking prices higher again.
Real Estate Must Be Viewed Through Its Own Lens
Real estate is not the same as stocks. A reduction in transactions does not equate to a disappearance of demand, nor does a drop in prices lead to lower housing cost burdens. When purchases are restricted, some buyers shift to non-regulated areas, while others remain in the rental market. When rental options are limited, they may turn to monthly rentals. Supply is not an immediate product that increases upon order; there are years of lag between permits, construction, completion, and move-ins. If the stock market focuses on liquidity and trading volume, the real estate perspective must consider the people and time that remain behind.
The government has had some success in curbing speculative transactions in Gangnam. However, the trend of price stabilization has not lasted long. Gangnam has rebounded while holding firm on asking prices, some demand has shifted to Dongtan, and some has remained in the rental market, pushing up housing costs. The government has not fully grasped when and how the next supply gap will return as a burden. Real estate policy should not end with suppressing the market to buy time. If time has been bought with a stock market perspective, housing must be created for people to live in during that time, as real estate ultimately concerns where people reside.
* This article has been translated by AI.
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