House prices climb in South Korea

Photo: GCraig3SI

House prices are climbing in South Korea, as demand and low interest rates drive them higher.

The country’s latest house price index shows that property values rose 3.47 per cent in November 2015 year-on-year.

Price growth was fuelled by demand for property, with sales climbing to 290,937 over the year to Q3 2015, according to the Korea Development Institute.

Low interest rates and economic growth helped to boost demand. Korea’s GDP rose 2.6 per cent in Q3 2015, up from 2.2 per cent in Q2 2015, the fastest third quarter growth in five years, boosting confidence among citizens. With rates for mortgages at an average of 3.02 per cent, far below the 7.58 per cent recorded in October 2008, purchasing property has become particularly attractive.

One other factor, notes Global Property Guide, is the rising cost of chonsei contracts, which are rental leases – usually for two years – that require tenants to pay a lump sum deposit (of up to 80 per cent of a home’s value) rather than a monthly rent. The homeowner than refunds the amount when the lease ends, reducing the likelihood of tenants defaulting on fees, but also requires a hefty amount of money in advance from renters.

Faced with rising amounts, buyers instead opted to purchase a home, with that demand pushing up house values in turn.

Daegu, the fourth biggest city in South Korea, led growth, with prices jumping 8.69 per cent annually. Gwangju followed, with prices climbing 5.92 per cent, ahead of Seoul, where prices rose 4.29 per cent.

Prices increased by 3.37 per cent in Incheon, 3.36 per cent in Busan, 3.26 per cent in Ulsan and 0.4 per cent in Daejeon.

Out of nine provinces, Jeju saw the largest leap of 6.91 per cent, followed by Gyeonggi (4.41 per cent), Gyeongbuk (2.85 per cent), Gangwon (2.12 per cent), Gyeongnam (1.72 per cent), Chungbuk (1.52 per cent), and Chungnam (1.01 per cent). Jeonnam and Jeonbuk recorded the weakest provincial price growth of 0.7 per cent and 0.4 per cent respectively.