Supply shortage could drive price rises for 6 to 7 more years

Real estate prices in Seoul have risen for 89 consecutive weeks, but a structural supply shortage of approximately 20,000 units per year could cause prices to rise semi-permanently for another 6 to 7 years. While Gangnam enters a consolidation pause, demand is shifting toward Gyeonggi Province areas like Gwangmyeong and Yongin.

As apartment prices in Seoul continue an upward trend for 89 consecutive weeks, an unusual market pattern is emerging where the momentum is spreading from premium areas to the outskirts and Gyeonggi Province. While house prices in the Gangnam area have entered a brief period of consolidation, major regions in Gyeonggi Province are leading the upward trend by filling the gap.

According to an analysis by Lee Seung-hun, representative of Lee Seung-hun Real Estate Research Institute, reported by KB Real Estate TV, the current real estate market is exhibiting a typical "cyclical rise" pattern. "It is a natural flow for premium areas to rise first, followed by mid-tier, lower-tier, outskirts, and eventually provincial areas," Lee explained. "After the Gangnam area surged first, buying demand is moving to mid- and lower-tier areas to close the price gap."

Gangnam's pause is a 'gap-filling' process, not a signal of decline

The recent stagnation in house prices in the Gangnam area, including Gangnam and Seocho, has raised concerns in the market about a potential reversal. However, Lee dismissed the idea that this should be interpreted as a precursor to a decline. He diagnosed that "the adjustment seen in some complexes that have risen too much is not a decline, but rather a 'consolidation pause' following a short-term surge." He explained that even if a price rises by 2 billion won and then drops by 500 million won, it should be viewed from the perspective that the price has ultimately risen by 1.5 billion won.

The impact of loan regulations concentrated on high-priced housing has also caused buying demand to temporarily thin out. "Because prices in the Gangnam area are so high, buyers often need to mobilize cash, leading them to wait and see," Lee analyzed. "A process is underway where mid-to-high-tier areas in Gyeonggi Province are filling the price gap created by Gangnam." He noted that because of the rapid rise in the Gangnam area, buyers are currently in a "wait-and-see" stance.

Major areas in Gyeonggi Province currently showing upward trends include Gwangmyeong, Yongin, Bundang, and Yeongtong in Suwon. These areas have good accessibility to Seoul and are rising in tandem with Seoul's mid- and lower-tier areas, forming similar price levels. Conversely, peripheral areas of Gyeonggi Province such as Ilsan, Incheon, Uijeongbu, and Ansan have not yet joined the upward trend. "One should not make the mistake of selling a house thinking 'my neighborhood won't rise,'" Lee advised. "This is a time to wait for the sequence to arrive." However, he viewed the rapid rise of certain complexes with exceptional scarcity, such as those with excellent interiors or views from royal buildings and floors, as exceptional cases.

"Prices will rise semi-permanently if supply shortage is not resolved"

Lee identified "supply" as the key variable that will determine the future direction of the real estate market. He offered a forecast that "a large-scale structural rise will continue for about 6 to 7 more years." His logic is that instead of demand-side volatility, such as population decline theories, focus should be placed on "supply volume," which is a more predictable variable. He emphasized that since demand is essentially close to a fixed form, it is important to look at supply, which is a much more variable item.

"In the case of Seoul, there is an annual inflow of new demand of about 46,000 to 50,000 units, but for the past four years, the annual supply has not even reached 30,000 units," Lee analyzed. "Approximately 20,000 units of demand are accumulating every year, intensifying competition and pushing prices up." He stated that if the situation where supply cannot keep up with demand continues, prices will inevitably continue to rise. He added, "If the supply shortage is not resolved, prices will rise semi-permanently and could rise endlessly."

This supply-demand imbalance is leading to instability in the jeonse (lump-sum deposit) market. A vicious cycle is occurring where buying demand moves to jeonse due to the supply shortage, and as jeonse loans become difficult due to interest rate hikes and loan regulations, demand moves again to monthly rent. In fact, recent demand for monthly rent has surged by 50% compared to apartments, resulting in a sharp rise in monthly rent prices. In provincial areas where the jeonse-to-purchase price ratio exceeds 70–80%, the possibility of price increases appearing when the accumulation of unsold units is resolved was also raised.

Increasing listings and decreasing transactions: a signal of decline?

As an increase in listings and a decrease in transactions have been observed in some areas of Seoul, some view this as a signal of falling house prices. However, Lee defined this as a "temporary phenomenon caused by loan regulations." He explained, "Loan regulations are very effective at cutting off transaction volume because they make it impossible to borrow money even if one wants to buy, but the effect is temporary." He noted that while one can endure tax increases or interest rate hikes to make a purchase, loan regulations physically block purchases, creating a large temporary impact.

Ultimately, Lee's core argument is that as long as the fundamental problem of supply shortage is not resolved, the market will find upward momentum again. He predicted, "There will not be a big difference from the current trend for about six months," and suggested that "price changes are unlikely to occur significantly in mid-to-high-tier areas that have already risen." However, he believed the spread of the upward trend from mid-to-high-tier areas in Gyeonggi Province to lower-tier areas, and then to the outskirts and provinces, would be unstoppable.

Lee emphasized, "For end-users who have not yet secured a home, it is truly important to acquire one home for actual residence, even if only as a defensive measure," while conveying the outlook that upward pressure on housing prices will persist as long as the supply shortage remains unresolved.

Source: original video (YouTube)