CEO Song Seung-hyeon Predicts Increase in Listings from Gangnam Elderly and 'Downsizing' Following Tax Reform Confirmation

In a video released on KB Real Estate TV, CEO Song Seung-hyeon addressed the real estate market, where interest rates, tax reforms, and Land Transaction Permit Zone regulations are intertwined. When the host asked for his view on the possibility of a sharp drop in house prices, citing rising interest rates, mortgage delinquency rates, and auction situations, Song replied that it is difficult to agree with the theory of a crash, noting that while the winning bid ratio has recently fallen to around 70%, the winning bid ratio for apartments in central Seoul, the core of the real estate market, has exceeded 100%.

Song stated that caution is needed regarding evaluations that the public should purchase housing in preparation for a crash. He explained that places where crashes occur are likely to be areas that are relatively less valued in terms of housing type, size, or region, or products that are not selected in the auction market, which could lead to the issue of using national funds to purchase undesirable housing.

Gangnam Elderly and Retired Generations Expected to Increase Listings Following Tax Reform Confirmation

The host introduced that the government, after lowering the basic deduction for a non-residential single house to 900 million won, is now considering maintaining it at 1.2 billion won due to various circumstances. Regarding this, Song stated that since the final plan has been confirmed, he expects the elderly and retired generations in Gangnam to put more properties on the market. He judged that while the gap between residential and non-residential was about 500 million won when it was 1.4 billion won and 900 million won, it is now about 200 million won with 1.4 billion won and 1.2 billion won, which is considered an acceptable level. However, he added that since house prices have risen and the structure of the official market value ratio is gradually increasing, the Comprehensive Real Estate Tax burden will inevitably still exist.

Song conveyed that when meeting market participants, they sell if they judge it matches their expected profits, and if they had a large area, they intend to reduce the area. He explained that they consider downsizing from old reconstruction complexes with large areas and high prices to semi-new or new complexes to realize profits and plan for retirement. Accordingly, he predicted that Gangnam house prices would adjust to some extent while listings increase.

He also suggested the direction of movement. Looking at the contents of the tax reform, the level up to 2 billion won or broadly up to 2.5 billion won is not that burdensome, so there is a strong possibility that those in the Gangnam area or Seocho will move to the Mapo, Yongsan and Seongdong area or Gangdong-gu, or to Songpa-gu apartments if they have more tax-paying capacity. Song saw this increase in listings occurring mainly around high-priced housing. He agreed with the host's summary that attempts to switch homes among those with large capital gains due to special deductions for long-term holding will increase in the 2 billion to 2.5 billion won range.

Land Transaction Permit Zones and Supply Shortage in the Jeonse and Monthly Rent Market

He expressed a critical view regarding regulations. Song pointed out that even looking globally, designating an entire city as a Land Transaction Permit Zone is close to an irrational regulation. He explained that in foreign countries, they designate areas where one person monopolizes crops or areas directly related to security and safety, whereas in Korea, it is a system that has primarily regulated land when major national development plans are announced. He viewed that it is a structure where not only selling prices rise but Jeonse and monthly rent prices also rise together, creating much stronger upward pressure, and that prices are likely to be determined by supplier-centered asking prices as the available volume decreases.

He also mentioned that since Guri and Dongtan have also been incorporated into Land Transaction Permit Zones, one should instead worry about the designation becoming too widespread.

He diagnosed the Jeonse and monthly rent market as serious. Song stated that the average monthly rent for apartments in Seoul has risen to about 1.6 million won, and when the government's tax reform proposal came out, landlords had already notified tenants of monthly rent increases or informed real estate agents that they would move in themselves, and agents had conveyed much of this to tenants. However, it is difficult for tenants to move elsewhere. He explained that the volume of available listings is extremely insufficient; in Jungnang District, it has decreased by approximately 70% compared to a year ago, and even in the area where the volume decreased the least, it has decreased by about 30%.

A decrease in volume acts as a factor that leads to a strong Jeonse market and can increase the Jeonse-to-price ratio. Song emphasized that looking at recent contracts, the structure is to keep the Jeonse deposit the same and receive additional monthly rent, noting that the proportion of monthly rent has exceeded 60%, to the point where the monthly rent price index should be released along with the sales price index and Jeonse price index trends.

Possibility of 3.5% Base Interest Rate and Decrease in Supply in 2028

Regarding interest rates, the host introduced that the Bank of Korea's base interest rate has risen from 2.5% to 3%, and there is a consensus that it could rise to 3.5% next year. Song replied that if the interest rate rises to 3.5%, the real estate market is likely to contract. This is because real estate is a product with a strong dependence on interest rates due to its very high prices. He explained that areas on the outskirts of Seoul, which have a high dependence on loans, will react sensitively, and as demand that hesitates to purchase homes moves to Jeonse or monthly rent demand and accumulates, problems in the Jeonse and monthly rent market also arise.

Conversely, he saw factors that pull up house prices. He said there is a sufficient possibility that people will be pushed into purchasing homes if demand gathers in the Jeonse and monthly rent market and pressure rises. Citing that the supply volume around 2028 will decrease by one-third to one-fourth compared to the appropriate level, Song analyzed that while the intensity of the variable of interest rate pressure was strong in the past, there are parts that offset it now. He predicted that selective buying will continue, but the structure is becoming such that it is difficult for the buying trend to be as strong as before.