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Home prices in provinces outside of Seoul area surging

Posted September. 05, 2011 04:26,   


“The price of an apartment 49 square meters in area built more than 10 years ago rose from 60 million won (56,500 U.S. dollars) early this year to 100 million won (94,200 dollars). But nobody has stepped up to buy it. I fear that prices continue to rise for the time being.” (Real estate agent in Changwon, South Gyeongsang Province)

“Demand for small-size apartments is high but supply cannot catch up. This is why the price of jeonse (rent based a lump sum deposit refundable after the lease period expires) has been rising since early last year. This has prompted many to purchase homes from late last year. The price increase is alarming, however.” (Real estate agent in Cheongju, North Chungcheong Province)

Home prices are rising in large cities such as Busan, Gwangju, Daejeon, Daegu and Ulsan and those in provincial cities such as Jeonju, North Jeolla Province. Certain areas saw double-digit hikes in housing prices and transactions stopped in other areas due to rising sale prices stemming from the lack of houses put on the market.

Higher housing prices are blamed on the mismatch between supply and demand due to the suspension of new housing construction. Experts said the mismatch will continue for the time being, warning of price gains in provincial areas triggering nationwide price hikes.

○ Metropolitan and provincial cities lead price hikes

According to Kookmin Bank on Sunday, housing prices grew 5.3 percent nationwide in the first eight months this year, the highest since 11.6 percent in 2006. Considering that houses generally gain in value from October through December, housing inflation is expected to rise up to 10 percent by year’s end.

Large cities throughout the country excluding Incheon are leading the price gains. As of late last month, housing prices in Gwangju grew 14.5 percent, Busan 13.2 percent, Daejeon 12.3 percent, Ulsan 8.4 percent, and Daegu 6.6 percent. All of the rises are above the national average.

By province, South Gyeongsang saw the largest gain of 15.3 percent, followed by North Chungcheong with 11.1 percent and Gangwon 10.4 percent. Other regions even show signs of overheating, with housing prices in Busan’s Buk district growing 19 percent and Sasang district 19.3 percent.

What is worrisome is that price hikes are spreading to other areas. As recently as the first half of this year, double-digit growth was confined to certain metropolitan cities such as Busan and Daejeon.

Small- and mid-size cities are now following suit, however, including Chuncheon in Gangwon Province, Cheongju and Chungju in North Chungcheong Province, Jeonju in North Jeolla Province, and Mokpo in South Jeolla Province.

Na Chan-hwi, Kookmin Bank`s supervisor of real estate surveys, said, “The increase rates in housing prices are average figures that include the prices of apartment units, single-family units, and multi-units houses, so increase rates for apartment units will be much higher.”

○ Small-size apartment units in short supply

The biggest cause of the price spike is lack of supplies, with the property market taking a direct hit from the cutoff of small-size housing supplies.

Sim Gyu-seon, who runs a real estate agency in Chungju, said, “Demand for small houses with a floor space of 40-50 square meters is high in Chungju. But most private apartment units sold over the past two to three years have more than 85 square meters of floor space,” adding, “Such a mismatch has led to an imbalance in supply and demand and the rise in housing prices.”

Park Geun-seok, a real estate agent in Ulsan’s Nam district, said, “With those from outside of cities looking for small houses amid no supply of small-size apartment units, no transactions have been made.”

A staff member at a real estate agency in Gunsan, North Jeolla Province, which saw housing prices go up more than 9 percent over the first eight months of the year, blamed the supply and demand imbalance on lack of new home supply, saying, “Since last year, small houses have led price gains."

The same goes for Mokpo, South Jeolla Province. Yang Su-chan, head of the Mokpo branch of a real estate developer preparing for selling apartment units there, said, “Since government and public offices moved to Mokpo en masse, housing prices have skyrocketed due to apartment supply failing to keep up with demand.”

The government’s focus on action against the lack of jeonse homes in the capital area and paying little attention to the housing market in provincial areas could cause a bigger problem in raising housing price nationwide, experts said, stressing the importance of devising comprehensive measures that encompasses all housing markets in the country.

Seo Jeong-ryeol, a property finance professor at Youngsan University, said, “With (the property market) divided into provinces and the capital area, government policies centering on the capital area are ineffective in many cases,” adding, “Municipal and provincial governments with (housing construction) permission rights should prevent an imbalance between supply and demand by adjusting the timing of giving permits."

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