January 7, 2017 1:00 pm JST

South Korean home prices level off

Housing market casts gloom on country's future economic growth

Condos like these in Seoul are now harder to flip under new rules.

The South Korean housing market is rapidly cooling thanks to new rules that make it difficult for homeowners to flip properties. With the sole growth engine now losing steam, the country's economic future looks increasingly murky.

According to KB Kookmin Bank, one of the country's major banks, the pace of increases in home prices slowed sharply to 0.07% in December from a month before. The growth rate had been above 0.2% in October and November. Greater Seoul was especially notable for how fast price increases decelerated in December, to 0.1% from close to 0.4%.

"[The market] is cooling faster than expected," a property analyst at the bank said on TV on Tuesday. "Unless there is some new market-moving news to restore investor confidence, it will take a while to emerge from winter."

The government in November decided to rein in the housing market. Buyers of new condos in Seoul's Gangnam and three other districts where home prices had been soaring now have to move in before they can sell their units.

Also, homebuyers in Seoul and some parts of its urban footprint are now banned from flipping their properties in the first 18 months of signing sales contracts. As a result, sales for the purpose of immediate resale have apparently dwindled.

Since 2014, the government has introduced a series of measures designed to buoy the economy. It has raised the cap on housing loans relative to the value of the property and allowed borrowers to take on more debt.

A series of interest rate cuts by the Bank of Korea, the central bank, also helped pull money into the housing market. The number of newly built homes doubled from 200,000 units in 2010 to 400,000-500,000 units got built in 2015 and 2016.

As a consequence, household debt at the end of September had more than doubled from 10 years earlier to 1.295 quadrillion won ($1.08 trillion). This eye-opener was what prompted the government to curb borrowing two months later.

The Bank of Korea, meanwhile, is unlikely to further cut interest rates for fear of chasing capital out of the country and into the U.S., where rates have been rising lately. The housing oversupply, therefore, is likely to persist.

There are other economic hangovers. Exports, long a major driver of South Korea's economy, have been queasy, mostly due to China's economic slowdown.

Investment in construction, helped by strong property demand, used to be the economy's only engine. But with home sales in neutral, the trend could weigh on construction companies' balance sheets.

There is also the impeachment of President Park Geun-hye, which has been eroding consumer confidence. The Bank of Korea's consumer sentiment index in December fell by 1.6 percentage points from November, to 94.2, the lowest reading since April 2009.

Add the disappointing performances of the shipping and shipbuilding industries to South Korea's woes, then perhaps you can feel the pall that the quiet housing market is casting over the country's economy.

(Nikkei) 

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