Housing prices in Seoul's Gangnam district have seen a dramatic surge in recent weeks, with some apartments increasing in value by 600 to 700 million won (approximately £320,000 to £420,000). This rapid price spike has created a ripple effect across the city, pushing up property values even in areas that had previously seen a downturn, such as Nowon, Dobong, and Gangbuk, collectively known as "Nodogang," as well as Geumcheon, Gwanak, and Guro, referred to as "Geumgwanggu." Since mid-February, these districts have shown a clear upward trend in housing prices.
The primary cause of this renewed housing frenzy is believed to be the recent easing of the Land Transaction Permit System (LTPS) restrictions. In February, the Seoul Metropolitan Government lifted these restrictions in several key zones, including Jamsil, Samseong, Daechi, and Cheongdam, an area collectively known as "Jamsamdaechung." Within a month, apartment transactions in these locations rose by approximately 72 per cent, with average sale prices climbing by around 100 million won.
Initially, city officials dismissed this sharp rise in property prices as a short-term fluctuation, downplaying it as a temporary uptick in asking prices. However, the continued instability in the housing market has prompted a reassessment of the decision, with some officials now considering reintroducing LTPS restrictions. There has been growing concern that further intervention may be necessary if the price increases continue unchecked.
Criticism has mounted over the timing of the LTPS lift, mainly as the housing market was already showing signs of momentum, bolstered by expectations of interest rate cuts in both the United States and South Korea. Critics argue that easing regulations during the peak moving season has exacerbated the situation, likening it to "pouring fuel on a fire."
The Ministry of Land, Infrastructure, and Transport had previously warned against lifting the LTPS, cautioning that it could significantly impact property prices. Yet, their concerns were not fully considered, and it later emerged that there had been no consultation with financial authorities before the decision was made.
Real estate has long been a volatile issue in South Korea, with various administrations struggling to maintain stability in the housing market. With interest rates, one of the key drivers of property prices, set to fall for the first time in over three years, the decision to ease LTPS restrictions is being seen as a lack of foresight.
Furthermore, some speculate that the decision was politically motivated, with Seoul Mayor Oh Se-hoon, a potential presidential candidate, seeking to appeal to local sentiment ahead of upcoming elections. Given the consequences of this move, many believe the city government should move swiftly to reintroduce the LTPS to curb speculative activity and stabilise the market.
The surge in housing prices has also raised concerns about South Korea's growing household debt crisis. After a brief dip in January, household loans increased by 4.3 trillion won last month, bringing South Korea's household debt-to-GDP ratio to the second-highest in the world, behind only Canada. In response, the Financial Services Commission has called an emergency meeting to monitor mortgage loan applications in key districts, including Seocho, Gangnam, and Songpa, the so-called "Gangnam 3 Districts", as well as Mapo, Yongsan, and Seongdong, known collectively as "Mayongseong." Banks are now urged to ensure that genuine homebuyers can access the necessary financing without further fuelling speculation.
As policymakers weigh their options, it's clear that decisive action is needed to ensure housing prices remain stable and protect economic stability in the process. The surge in property values has intensified the housing crisis and raised alarms about the long-term sustainability of household debt levels, further underscoring the need to manage the country's real estate market carefully.
