Building Market is Alive and Kicking

It has been found that the annual building contract value exceeded six trillion won (US$5.4 billion) in South Korea for the first time in the industry last month after having broken the five trillion won mark for the first time in September this year. This is because of low interest rates and the shrinkage of the presale housing market.

According to building brokerage firm Realty Korea, the value totaled 467.9 billion won (US$421 million) in November this year and 6.1234 trillion won (US$5.5 billion) for the first 11 months of this year, during which a total of 1,100 building contracts were signed.

The value began to increase rapidly in the second quarter. It reached 995.8 billion won (US$896 million) in March, 2.2047 trillion won (US$1.98 billion) in May, 3.9621 trillion won (US$3.56 billion) in July and 5.0213 trillion won (US$4.5 billion) in September. The monthly value totaled 800.5 billion won (US$720 million) in May and hit an all-time high of 1.2648 trillion won (US$1.13 million) in July.

Such a boom has been led by small buildings, each with a value of five billion won or less. 762 such buildings changed hands during the 11 months while the number was 38 in the case of those priced at more than 20 billion won (US$18 million). The ratio of individual buyers was 73.9%.

“The actual transaction amount is likely to be larger than the statistics and this year’s annual total is likely to be much more than eight trillion won,” said Remax Korea, a local real estate franchise company, adding, “This is because not all transactions can be turned into statistical data in the building market unlike in the housing market.” It went on to say, “Building brokerage firms’ statistical data consist of major buildings in most cases and the value can be astronomical when small buildings are included in the calculation.” The company also pointed out that the boom that has lasted since 2012 is unlikely to continue next year due to various internal and external variables, including a decline in the rate of return.

Those variables also include polarization in the studio apartment market. “The vacancy rate of studio apartments has risen from the natural vacancy rate since the fourth quarter of 2013,” realty asset management company Genstar explained, adding, “At the same time, the difference between the rates of return has increased in relation to their locations, sizes, ages and so on, which has led to a higher level of market volatility and polarization.”