It was the biggest fall in 6 years, leading to expectations of further price declines
The Business Times - February 12, 2013
[SEOUL] HOUSING transactions in South Korea fell the most in at least six years as the faltering economy reduced personal income, boosting expectations of further price declines in the property market.
Apartment transactions tumbled 21 per cent from a year earlier to 720,000 units in 2012, posting the biggest fall since the data was first compiled in 2006, the state-run Korea Development Institute (KDI) said in a report on Monday.
The country's economic downturn reduced household income, leading to sluggish demand for homes and weak expectations for future price hikes, according to the KDI's empirical analysis.
The economy grew the least in three years in 2012, and the Bank of Korea (BOK) cut its 2013 growth outlook to 2.8 per cent, lower than the OECD's forecast of 3.1 per cent.
The dim outlook indicated that the nation's real estate market would face further price declines in 2013, in contrast to the US and China markets.
Housing prices in Seoul and its suburban metropolitan areas maintained a downward trend last year, with those in Seoul falling 3.6 per cent.
US housing prices in 10 major cities rose 0.1 per cent in the third quarter from three months earlier after falling 1.54 per cent in the prior quarter, according to the report. Home price growth in China accelerated to 6 per cent in the third quarter from 2 per cent in the second quarter.
There are fears that South Korea's housing market will enter a long-term recession due to structural problems such as an ageing population and retiring baby boomers as well as low economic growth.
Demographic changes would slow population growth, resulting in the weakening of real demand for housing as places of residence.
The United Nations predicted that South Korea will become a super-aged society in 2026 after becoming an aged society in 2018. The country became an ageing society in 2000. Societies whose proportion of those aged 65 and over surpasses 7 per cent, 14 per cent and 20 per cent of the total population are referred to as ageing, aged and super-aged societies, respectively.
Population ageing entails a fall in those aged 30-54, the major demographic group that buys homes. The group in South Korea is expected to peak in 2013 at 43.5 per cent before falling thereafter.
Ten years after the group in Japan peaked in 1986, land prices in Tokyo fell to a quarter of their peak level.
Baby boomers retiring would also trigger home downsizing as those born between 1955 and 1963 could sell large homes upon retirement to buy a couple of smaller ones, which could be rented to earn income.
Price falls in the high-end, large-size homes may send shockwaves throughout the property market.
According to the finance ministry, there were 7.13 million baby boomers in South Korea as of 2010, making up 14.6 per cent of the total population. Their numbers will increase by 500,000 to 800,000 each year.
The expected slow growth and lower housing prices may encourage the BOK to cut its benchmark interest rate further. "Expansionary monetary policy will help enhance financial and economic stabilities under the economic downturn in connection with the housing market slump," the KDI said in the Feb 5 report.
According to the report, a one percentage point rise in the benchmark rate would drag property prices down by 2.8 percentage points.
Monetary policy plays a pivotal role in boosting consumer confidence and expectations of an economic recovery when a downturn comes in connection with a housing market slump, the report said.
The BOK kept the benchmark seven-day repurchase rate on hold at 2.75 per cent in January after cutting the rate by 25 basis points in July and October last year.
Expectations of an additional rate cut spread after BOK governor Kim Choong Soo said the monetary policy will be effective when it comes with the fiscal policy. His comment was in line with speculation that the new administration under President-elect Park Geun Hye will unveil new stimulus measures after taking office on Feb 25. – Xinhua
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