By Considering how much people have invested in their homes in Korea any popping of the housing bubble would be devastating:
The Korean property market seems to be grinding to a halt. The total number of apartments that were bought and sold last month stood at the lowest rate since 2006, when such data was first tabulated.
According to the Ministry of Land, Transportation and Maritime Affairs on Thursday, a total of 15,181 apartments were traded in January, down 76 percent from the previous month and just a third of the volume seen one year earlier. It was also less than half of the average volume (33,000) traded over the last three years.
In Seoul, volume dropped 72 percent on-year in January, or 64 percent in areas outside the capital.
Some 23,828 apartments were bought and sold in 2006, a number that increased steadily until 2008 but dropped to around 18,000 in 2009, in the wake of the global financial crisis triggered by the collapse of Lehman Brothers in the U.S. But trading volume rebounded over the next two years.
However, things took a sudden turn for the worse at the end of last year as certain tax benefits for people buying houses came to an end, leading to a drop in demand. [Chosun Ilbo]
3:35 am on February 20th, 2012 1
Beware the coming Apartment Bloodbath of 201X.
The reality is…
- People with money are buying more than one apartment as an “investment” when nothing else is offering much of a return.
- Intentional speculators are buying more than one apartment with official or unofficial borrowed money in hopes of short-term gain… and reinvesting back into more apartments with their profits.
- Average Koreans can no longer afford apartments based on their salary.
- Average people who “own” apartments frequently can only pay interest on the loan with equity gains made through artificial increases in value… at which point they upgrade to a better apartment with a higher artificial value… but they are still on the hook for a big loan.
- Construction companies are building new apartments as fast as they can with no concern for who will actually buy them.
I would be interested to hear anybody’s theory on how this can all be brought down with a soft landing.
…’specially being that it seems like a repeat of America’s housing bubble.
6:11 am on February 20th, 2012 2
Nobody’s buying apartments. The trend is buying houses and buildings.
6:16 am on February 20th, 2012 3
Will this strengthen the Korean Won/currency?
#1
“Construction companies are building new apartments as fast as they can with no concern for who will actually buy them.”
Last I heard about 30 construction companies failed and the new Seoul Mayor has put a halt to some building(LMB’s plan or maybe it wasn’t his plan originally) as are other provinces.
7:31 am on February 20th, 2012 4
PonShi = Ponzi. same same.
7:33 am on February 20th, 2012 5
I told my wife we should have sold our apartment in Gangnam last year! If I show her this information, she’ll be beside herself!
7:55 am on February 20th, 2012 6
Teadrinker,
Any trend in buying houses, other than country “vacation” homes, is news to me. Do tell more.
As for commercial buildings as an investment, the right building in the right location at the right price might be good… but most will hardly be a sure thing.
There are a lot of commercial buildings in average locations with continuous vacancies… meaning there is no rent-based return on investment… and little chance of an increase in property value equal to inflation. Cash in a shoebox would be less hassle.
These properties have not gone up in value in over a decade… and, technically, might have gone down… though it is hard to tell because nobody is looking to buy so nobody is selling…
…and there is a certain fear that if one puts one’s property up for sale and all the offers come back at half what you think it is worth, then a new reality is created for the actual value.
Lots of formerly high-value property in formerly busy areas (like traditional markets) is in this category. Owners won’t budge on the price because “that is what it is worth!” and potential buyers can’t see any way to make a decent return with decreasing business volume and decreasing rents. So nothing gets sold and owners continue feeling “rich”.
Due to fortunate circumstances, I got my corner building quite a bit under the probable market value in a faded neighborhood. Over the last year, a number of unsolicited offers to buy it at reasonable prices were made… meaning the connected people who know the secret city redevelopment plans were plotting on it. A couple weeks ago, notices went up for redevelopment of the intersection… the other side, fortunately. This will likely affect the property price in a big way.
But this is all luck. I didn’t buy the building as a calculated investment. I bought the building to use. It suited my needs for a bar, workshop, laboratories, storage, and living space… and, if the redevelopment makes the value go up substantially, I will sell it and buy an even bigger building in an older and more hopeless neighborhood… for which the only expected return on investment will be space-based quality of life and the income I generate through my own businesses in my ever-increasing need for more space.
Which brings us back to commercial buildings as an investment.
It is possible to make good decisions and have good luck… but unless you are using it or renting it, you are losing money between taxes and upkeep… and, generally, places that are easy to rent out have that factored into the price to buy… so there is no real gain.
Which brings us back to the Housing Bloodbath of 201X.
A lot of people leveraged up with more than one apartment have commercial property as well. When the housing price collapses, a good deal of commercial property will go up for sale at reasonable prices. Combine this with a couple years of 1997 IMF-style recession, that sees a lot of small business failure and rent-less shops, and it will be a good time to pick up a building from someone desperate to sell with few people buying.
This is my interpretation of the situation.
As you are in the market for a building, what do you think of these thoughts?
8:22 am on February 20th, 2012 7
# 6 – As you indicate, it’s all about location, location, location!
We rent an office space in Yongin, near our major customers. That area is so depressed, that every year (for the past 4), we’ve been able to renegotiate our rent lower and lower. Right now, our rent is so cheap, it makes no sense to buy. I know the Yongin area is not a good indicator of market trends, but then again, they have felt the bubble sooner than other areas. I believe the bubble will continue to deflate and will soon spread to other areas of the Seoul metro area.
9:00 am on February 20th, 2012 8
#1
“Construction companies are building new apartments as fast as they can with no concern for who will actually buy them.”
Last I heard about 30 construction companies failed and the new Seoul Mayor put a halt to some building, as are other provinces.
1:44 pm on February 20th, 2012 9
#6 & #7:
Is there any chance that your property could be bought from under you without your permission? I’m thinking something along the lines of eminent domain or just some rich MF pulling some legalese and snatching it up from the foreigner…curious.
I’m considering having the wife do the F4 thing and then tagging along.
2:18 pm on February 20th, 2012 10
“Seoul`s real estate market frozen under Mayor Park, Won-soon”
http://english.donga.com/srv/service.php3?biid=2012022068988
2:21 pm on February 20th, 2012 11
cont(from the link in #10)…
“The apartment reconstruction market, which is as sensitive as the New Town project, has also been frozen under Park`s policy to regulate the building of smaller-size apartments.”
2:27 pm on February 20th, 2012 12
#9 – my wife has an F4 visa… one thing to keep in mind. Your wife having an F4 visa will enable you to get an F2 visa, but that (an F2) will not permit you to work. Just FYI in case that’s important.
6:23 pm on February 20th, 2012 13
12 – I’m not sure that is correct on the F2.
A subset of the TESOLer crowd are F-2 holders. They are in high demand in the hakwon market. I guess because of the ease of paperwork…?
From what I’ve heard, the F-2 is much more preferable to the E-2 visa most ESL instructors have because it allows you much more freedom in changing jobs or holding multiple jobs.
I looked into getting it when I came back 2 1/2 years ago, but put the effort aside when I got a job with the public school system.
6:46 pm on February 20th, 2012 14
#6,
I clearly don’t have to tell you this, but it’s all about location. You have to do your homework before you buy and owners are definitely budging on their prices if the location isn’t great (when we shop, some owners practically beg us to buy their buildings).
Many of our friends who have bought apartments in Kangnam and Bundang as an investment are now looking at buildings in Wonju. The prices are still reasonable there and the town is growing rapidly. There are talks of it becoming a Kwanyokshi in the next few years, at which point the land value should climb considerably more.
6:52 pm on February 20th, 2012 15
#13,
It’s no longer F-2, but F-6, I believe. Either way, the laws changed over 5 years ago. Since then, those who are on a residency visa no longer need Immigration’s permission to seek employment. As long as you renew your visa periodically, Immigration won’t bother you.
6:54 pm on February 20th, 2012 16
#13 – you’re right, I get them confused. My wife is a returning resident (Overseas Korean) so she is on an F4. Since she is on an F4, all I am eligible for is an F3, which is an Accompanying Spouse visa. Under that visa, I cannot work. So we’re in the process of obtaining a D8 visa for me. If I had an F2, you’re right, I could work and do just about everything but vote.
7:00 pm on February 20th, 2012 17
Apartment prices in Deagu have been going up for two years now, it’s getting pretty bad. Owners are almost asking for Seoul level prices. I’m expecting there to be a depression in home values in the next couple of years. No where near the mortgage explosion we had in the states, but Korean’s are not able to afford these prices.
7:14 pm on February 20th, 2012 18
In a perfect world the people who live in an area should have the best information on the development plans there and should be able to estimate the future value of their property. Maybe most of the land-grabs are based on insider information not available to the general public, but very often, even the high-rollers get burned.
In the past 10 years, I know of numerous well connected people who lost 10s of millions of won buying property because they believed they had good information on development plans for USFK relocations. Even though the information turns out to be accurate, the years of delay meant they overpaid, couldn’t maintain the bank payments they owed and eventually had to release it at a big loss.
When purchasing property as an investment, it’s not just location. It’s also luck and timing.
7:17 pm on February 20th, 2012 19
#16,
What is a D8 visa? For business owners?
I’m on an F5, which allows me to vote in every election but the presidential election. I voted during last elections, and the people manning the polling stations all knew about F5 visa holders (not a surprise since there are lots of foreigners married to Koreans in our town). The old folks (not many young people voting…and yet they are the first to complain) didn’t seem surprised to see me either. I would imagine many of them know someone married to a foreigner.
7:39 pm on February 20th, 2012 20
#18,
Yup, and people don’t always keep up with the news. That’s how we got a great deal a couple of months ago. The previous owner wasn’t aware that the government had just announced that it would remove surtaxes for the owners of multiple properties and that it had just been announced that one of the largest public libraries in South Korea would be built 100m down the road. A week after we bought, prices in the neighborhood shot up 15%. And since land value goes slightly down in winter before increasing in spring, we did very well on our purchase.
8:39 pm on February 20th, 2012 21
#19 – A D8 is an investor visa. I have to invest approx $100K (100,000,000 WON). We have a US company and most of our business is in exporting to Korea (95%), so it wouldn’t be a big deal. I just haven’t made it yet since I’m still weighing the pros and cons. We have to maintain ITAR registration in the US, so in some ways, it might not be worth it.
5:01 am on February 21st, 2012 22
#21,
That’s what I thought. I remember reading about that visa somewhere. Isn’t the F5 available to investors who invest 500 million?
6:56 am on February 21st, 2012 23
@22 – Yes. Here’s the “rules” for F-5 visas: