Greater Seoul housing outlook plunges 20 points on loan, tax concerns; non-metro areas rebound

Expectations for housing development in the Greater Seoul area have fallen sharply amid worsening loan conditions and concerns over a heavier tax burden, while sentiment in non-metropolitan regions improved slightly. The housing business outlook index for Seoul and Gyeonggi Province each dropped more than 20 points in a single month, pushing the non-metropolitan index above the metropolitan reading.

A survey of housing developers by the Korea Housing Institute put the national housing business outlook index for August at 88.6, down 0.7 points from the previous month. The Greater Seoul area index fell 15.5 points to 86.1, while the non-metropolitan index rose 2.5 points to 89.1.

Within the Greater Seoul area, Seoul dropped 20.3 points from 113.1 to 92.8, and Gyeonggi Province fell 22.0 points from 105.7 to 83.7. Incheon also declined, slipping 4.4 points to 81.8.

The Korea Housing Institute attributed the metropolitan decline to growing financial pressure from major banks tightening mortgage loan limits and raising lending rates, compounded by the designation of parts of Gyeonggi Province as speculative overheating zones and adjustment target areas, which raised concerns about transaction restrictions. Discussions around strengthening property holding taxes on non-resident single-home owners and ultra-high-priced properties also heightened wariness over increased tax burdens and market uncertainty.

In non-metropolitan areas, the metropolitan city index edged up 0.2 points to 91.7, while the provincial index rose 4.3 points to 87.2. Among metropolitan cities, Gwangju posted the largest gain, surging 16.1 points to 110.5. Ulsan held steady at 100.0, while Sejong fell 7.2 points to 92.8, Busan dropped 5.6 points to 77.7, Daejeon slipped 1.3 points to 87.5, and Daegu edged down 0.8 points to 81.8.

Among provincial areas, Jeju recorded the biggest gain, climbing 24.1 points to 92.8. Gangwon Province rose 18.9 points to 91.6, South Gyeongsang Province gained 14.0 points to 90.9, North Chungcheong Province added 7.5 points to 87.5, and South Jeolla Province climbed 5.7 points to 85.7. South Chungcheong Province posted the steepest decline, however, falling 25.0 points to 75.0, while North Gyeongsang Province and North Jeolla Province dropped 8.2 points and 2.3 points, respectively.

"Among non-metropolitan areas, the overall metropolitan city index rose, but Gwangju was the only city that actually improved," the Korea Housing Institute said, adding that the city's housing market appears to be benefiting from positive momentum surrounding semiconductor cluster development. For provincial areas, the institute noted that regions where the index had been below 80 led the rebound, while those previously above 90 declined, resulting in a convergence of regional readings.

The national project financing index for August was forecast at 73.4, down 5.2 points from the previous month. The Korea Housing Institute said the decline reflected the first benchmark interest rate hike in three and a half years and rising market rates, which increased financial costs for developers, while bridge loan and project financing procurement costs also climbed. Difficulties in recovering funds and securing new financing continued to weigh on regional project sites and smaller construction companies.

The materials supply index rose 2.1 points to 95.3. The institute said concerns over the cost of imported raw materials and freight eased somewhat as the won strengthened against the dollar and international oil prices retreated from the sharp spike seen at the outset of the war in the Middle East. However, cumulative increases in raw material prices and labor costs continue to keep overall construction expenses elevated.