Record highs in the books, but Gangnam apartment asking prices tell a different story

Asking prices are falling and below-peak deals are emerging in high-end residential areas such as Gangnam and Seocho-gu following the government's tax reform announcement — yet official transaction data continues to show a string of record highs. Some analysts say the gap reflects a "transitional distortion," with deals struck before the reform and the changed market mood that followed both showing up in the statistics at the same time, due to the lag between when a contract is signed and when it must be reported.

According to the Korea Real Estate Board, apartment sale prices in Seocho-gu fell 0.09 percent in the third week of August (as of Monday), more than double the previous week's decline of 0.04 percent. Gangnam-gu also saw its rate of decline widen from 0.02 percent to 0.05 percent over the same period. The two districts were the only ones among Seoul's 25 autonomous districts to record falling apartment prices. The Korea Real Estate Board said below-peak transactions were concentrated in reconstruction complexes in Daechi-dong and Gaepo-dong, as well as Jamwon-dong and Banpo-dong.

Even so, new record-high transactions in the Gangnam area continue to surface in the Ministry of Land, Infrastructure and Transport's actual transaction price disclosure system. A 129-square-meter unit at Acro River Park in Banpo-dong, Seocho-gu, set a new record when it sold for 8.5 billion won ($6.1 million) on Aug. 3 (34th floor). A 90-square-meter unit at Seocho Grand Zi in Seocho-dong changed hands for 4.4 billion won on Aug. 13 (9th floor), also a new high. A 114-square-meter unit at Raemian Daechi Palace in Daechi-dong, Gangnam-gu, set its own record on July 22, selling for 6.38 billion won (15th floor).

Market observers say many of the record highs now appearing in the transaction system have yet to fully reflect the lower price expectations sellers have adopted since the tax reform announcement. There is an inherent lag between when a contract is signed and when it is reported, and buyers have recently moved to the sidelines, slowing deal activity.

Current asking prices listed on Naver Real Estate for the same unit type at Acro River Park start at 7.8 billion won and cluster in the low 8 billion won range — as much as about 700 million won below the recent record of 8.5 billion won. The lowest asking price for the 114-square-meter Raemian Daechi Palace unit stands at around 5.9 billion won, roughly 480 million won below the previous record.

The price adjustments are even more pronounced at older complexes. Some listings in the Gangnam area have come down by hundreds of millions of won from their peaks, with a few dropping by more than 1 billion won.

At Sinhyundae Apartment in Apgujeong-dong, Gangnam-gu, the lowest current asking price for a 183-square-meter unit has fallen to 8.59 billion won — more than 1.4 billion won below the July 22 transaction price of 10.05 billion won for the same unit type (4th floor).

Sellers in Seocho-gu are also lowering their expectations. Listings for an 84-square-meter unit at Banpo Xi have appeared with asking prices down to around 4.3 billion won, roughly 900 million won below the record transaction price set in January.

However, complexes with limited inventory show a smaller gap between record highs and current asking prices. The lowest current asking price for a 90-square-meter unit at Seocho Grand Zi is 4.39 billion won, just 10 million won below the recent record of 4.4 billion won. The degree of price adjustment varies depending on how much inventory has accumulated and the individual appeal of each complex.

The head of a licensed real estate agency in Banpo-dong, Seocho-gu, said homeowners who must sell after the tax reform have no choice but to list their properties at distressed prices. "Once deals struck after the reform announcement start being reported in earnest, it could look as though prices have suddenly dropped sharply in the transaction data," the agent said.

The agent added that while steep asking-price cuts on some listings make the overall market appear to be in freefall, most properties — aside from a handful of distressed sales — are priced only about 300 million to 400 million won below record highs. "Taking into account normal trading volumes and actual contract prices, it is too early to conclude that a clear downward price trend has taken hold," the agent said.

Yun Su-min, a real estate specialist at NH NongHyup Bank, said that because asking prices have come down considerably, the movement is likely to show up in actual transaction prices over time. "However, buying capacity is constrained by various regulations, so cutting prices does not immediately attract buyers — the market environment is not there yet," Yun said.

Yun also noted that complexes seeing the steepest asking-price adjustments share a common trait: they are older apartment buildings. "With the tax reform strengthening incentives for owner-occupancy, some demand appears to be shifting — rather than moving into an existing home, some owners are choosing to sell and relocate to a different property," Yun added.