while the government has taken strong measures to regulate real estate, including the designation of land transaction permit zones and speculative overheating zones, the effect has been minimal. Transaction volumes are down, but prices are not falling. So what is the reason for Seoul's rising prices? some say it's due to a lack of supply, but is that all there is to it?

the supply shortage theory and the rental/sale price gap

some argue that there is an absolute shortage of housing in Seoul, which is why prices are rising. however, in recent years, sales prices have risen much more rapidly than rentals, widening the gap between the two, especially in Gangnam, where sales prices have outpaced rental growth, and have even outpaced other neighborhoods.

falling cash values and demand for asset parking

one of the reasons behind the rising apartment prices in Gangnam is the concern of declining cash values and the demand for asset parking. most apartments in Gangnam are priced in the billions of won, and the lack of lending hasn't dampened the buying frenzy. This is due to fears of cash depreciation. It's become an unsafe time to hold cash, with some going as far as to say that "cash is garbage." As a result, people with spare cash are moving it into trusted Gangnam apartments to protect the value of their money.

this phenomenon is commonly referred to as asset parking. the recent "Everything Rally," in which all assets, including stocks, real estate, and gold, have been rising, and the value of the currency has been falling rapidly, has led to the perception that leaving cash on the sidelines is a losing proposition. As a result, people with spare cash have been encouraged to buy real assets. Among the options, real estate, especially apartments in Gangnam, which are highly stable and highly sought-after, have become the best refuge. The fear of being a "thunder beggar" is further fueling the Gangnam rush.

the mid-to-low-end gap and Nodogang views

seoul's price appreciation has been largely driven by the highly sought-after upper-end neighborhoods, leaving the mid- and lower-tier neighborhoods with lesser appreciation. Now, we are likely to see a "gap-filling" market that will close this gap. In fact, there are signs that the mid- and lower-tier neighborhoods have seen stronger price appreciation than the high-end neighborhoods in recent years, with homes in the mid- and lower-tier neighborhoods that have been flat for years now looking relatively cheap.

in addition, as regulations are focused on expensive areas, there may be a ballooning effect in less regulated areas such as Nowon, Dobong, and Gangbuk (Nodogang), meaning that prices in these previously neglected neighborhoods may start to rise.

influence of interest rates and global variables

last but not least, the relationship between interest rates and real estate prices is also important to consider. Given the current economy and prices, it is likely that the Bank of Korea will keep interest rates high for the foreseeable future. this will weigh on Seoul's real estate prices, as higher interest rates mean less demand for real estate.

also, if the global asset rally stops, the real estate market could be impacted.

FAQs

Q. are Seoul's rising prices really due to a lack of supply?
A. The lack of supply is partly, but not entirely, to blame. If it were, rental prices would have risen as well, but in reality, only sales prices have risen much higher. In the end, the money released by low interest rates and the concentration in certain neighborhoods, such as Gangnam, have had a bigger impact on prices.

Q. why have apartment prices in Gangnam continued to rise instead of falling?
A. Gangnam apartments are one of the most popular safe-haven assets in South Korea. with the recent decline in cash values, wealthy people have poured money into Gangnam real estate, which is why prices have risen so much. It's easy to buy with cash without a loan. However, the outlook for Gangnam prices is not always rosy. There may be a temporary correction depending on interest rates or economic conditions.

Q. will prices in less expensive neighborhoods like Nodogang also rise in the future?
A. Most likely. the Nowon, Dobong, and Gangbuk (Nodogang) area was marginalized in the last bull market, but now we may see a gap-filling trend. Some mid- to low-end apartments have already started to rise, and there is less regulation, so there is upside potential. some are even saying that "the outlook for Nodogang is bright".

conclusion

in conclusion, the real reason for Seoul's rising prices is not a lack of supply, but rather a preference for Gangnam apartments, which have become a safe haven in the face of declining cash values. This could lead to a gap-filling effect that will spread to less expensive neighborhoods, but it's important to note that a correction could come at any time, depending on interest rates and global economic conditions.

what are your thoughts? let us know your thoughts on Seoul's rising house prices in the comments.