"Between Rising Interest Rates and Loan Regulations"... Real Estate Market Situation Sees 44% Increase in Auction Items Compared to Last Year

As the burden of interest rates and loan regulations in the real estate market intersect, buyer sentiment is shrinking, and changes are appearing in the auction market. Member Sim Hyeong-seok analyzed the recent real estate market situation, focusing on the impact of potential interest rate hikes and strengthened loan regulations on buyer sentiment.

Interest Rate Hike Outlook and Loan Repayment Burden

With the current base interest rate at 3.0%, projections suggest that if three "baby steps" (0.25%p increases) are implemented this year, interest rates could approach 4% next year. If interest rates rise, buyer sentiment in the low-priced apartment market, which has a high proportion of loans, is likely to shrink further. In particular, as the burden of principal and interest repayments grows—with mortgage rates reaching the 8% range—cases are appearing where an office worker who borrowed 600 million won faces monthly repayments exceeding 3 million won.

Sim advised that if surplus funds become available, it is better to repay the loan principal to reduce the burden of principal and interest rather than investing. He also mentioned that those using variable interest rates need to monitor interest rate trends and consider switching to periodic-rate products or fixed interest rates. However, he noted that with periodic-rate products, a burden of interest rates may occur at the time of resetting after 3 to 5 years.

Changes in the Auction Market and Increase in Non-Apartment Items

Due to the impact of rising interest rates, properties from actual homeowners are appearing in the auction market. The number of auction items has increased by 44% compared to last year, while the winning bid rate and the ratio of winning bid prices are both trending downward. Looking at the types of auction items, while the increase in apartments is not large, non-apartment products such as urban-type living houses, row houses/multi-family houses, and officetels have nearly doubled.

Sim pointed out that more non-apartment items are appearing in the current auction market than apartments and explained that it is necessary to watch this market trend closely. In the case of apartments, there are still cases where the winning bid price ratio moves near 100%, but overall buyer sentiment remains contracted.

Relocation of Public Institutions to Provinces and Tax Reform Variables

The impact of the second policy for relocating public institutions to provinces is analyzed as a short-term positive for the real estate market. With approximately 350 public institutions scheduled to relocate, changes such as the disappearance of listings may occur in Sejong City. However, for this to lead to actual buying demand, the establishment of residential conditions and living infrastructure will be key factors. Sim expressed the view that it is more efficient to concentrate public institutions in hub cities (Gwangju, Busan, Daejeon, Daegu, etc.) rather than dispersing them across many regions.

Regarding taxation, the tax reform plan to be discussed in the National Assembly of the Republic of Korea is expected to be a variable for future buying movements. Currently, in areas with a high proportion of wealthy individuals such as Apgujeong-dong or Daechi-dong, inquiries regarding the burden of holding taxes are continuing, and market movements are expected to be determined at the time the direction of tax reform is finalized.