Morgan Stanley says downswing will continue for six to 12 months


Apartment prices in the Seoul metropolitan area fell to 10 percent below what they were just before the global financial crisis in 2008, signaling a protracted housing market slump, according to government data.

Prices of new apartments plunged some 30 percent in four years and housing transactions plummeted as fewer people moved home, said the report from the Land Ministry released on Tuesday.

Despite an increase in the overall population, the number of people who shifted their resident registration to a new address in the three months to June dropped to its lowest in 37 years. 

Morgan Stanley forecast the Korean property market slump would continue for another six to 12 months, saying the country’s unstable economic outlook, policy direction and the high price of real estate compared to income levels would constrain the effect of the loosened regulations on home-backed loans.

The government’s recent decision to ease borrowing restrictions based on the debt-to-income ratio is unlikely to cause home-backed loans to increase or have a major effect on the housing market, the U.S. investment bank said.

The declining demand for home purchases was also identified as a reason for the bearish property market.

The number of people who moved home in the first half of this year was tallied at 3.92 million, the lowest since 3.88 million in the first six months of 1979 and 18 percent less than the first half of 2008, according to data released by Statistics Korea on Tuesday.

The figure stood at 1.8 million in the second quarter, the lowest in 37 years.

“Migration dipped as the sluggish property market added on to the aging society and a weakened tendency to move to the Seoul metropolitan area,” a government official said.

Nationwide apartment transactions dived to 231,000 in the first six months of this year, down 37 percent from a year ago and the lowest since the government started tallying the transactions in 2006.

Apartment transactions in Seoul dropped more sharply by 41 percent to around 20,000 in the same period, less than half of the volume four years ago.

Last month’s apartment prices in Seoul, Incheon and the surrounding Gyeonggi Province were between 86 and 95 percent of the price levels in June 2008, the Construction Economy Research Institute of Korea said Tuesday, citing data from several sources.

Seoul apartment prices in July were 92.5 percent of the level in June 2008, said Real Estate 114, a leading property market information provider. KB Kookmin Bank’s figure was 95.3 percent and the Land Ministry’s 91 percent based on the actual transaction price index.

The drop was the sharpest in Gyeonggi Province, with last month’s apartment prices down to 88.9 percent of the price level of June 2008, according to Real Estate 114.

By Kim So-hyun (sophie@heraldcorp.com)