Apartment Prices Continue to Climb in 4Q20
The author is an analyst of NH Investment & Securities. He can be reached at minjae.lee@nhqv.com. -- Ed.
The real estate markets of the five major regional metropolitan cities and eight provinces in Korea are recovering in a stable manner. We draw attention to IS Dongseo, which has a high portion of in-house projects in such regions, including in Jungsan, Gyeongsan and Maegok, Ulsan.
Key indicators remain stable on steady rise in local real estate prices
Apartment prices in five major regional metropolitan cities and eight provinces (excluding metropolitan cities) rose 2.4% m-m and 1.2% m-m, respectively, in December, exceeding the national average of 1.3% m-m. The continued increase in real estate prices centering on the five regional metropolitan cities has led to: 1) a decrease in the number of unsold apartment units; 2) a rise in the number of construction starts; 3) a jump in mortgage loans; and 4) an increase in home sales transactions. In October, the number of unsold houses stood at 27,000 units nationwide, 4,000 units in the five regional metropolitan cities, and 19,000 units in the eight provinces, with the total number standing at half of the Dec 2019 figure. Construction starts came to 528,000 units nationwide, 101,000 units in the five regional metropolitan cities, and 132,000 units in the eight provinces, recovering from less than 450,000 units in 2019. Housing mortgage loans also began to recover in the five regional metropolitan cities and eight provinces in October, inching up 1.2% m-m and 0.6% m-m, respectively. We estimate that mortgage loans will increase further considering that apartment prices continued to climb in 4Q20. Housing transactions also recovered to 90,000 units nationwide in November, mainly thanks to increases in the five regional metropolitan cities and eight provinces.
The recovery in figures for the five regional metropolitan cities and eight provinces is similar to that observed during the 2003 and 2015 real estate booms, and the upward momentum is unlikely to fade over the near term (excluding external variables). In 2H21, IS Dongseo plans to carry out in-house projects in Jungsan, Gyeongsan and Maegok, Ulsan. The boom in real estate markets outside the Seoul metropolitan area is positive for the constructor.
Key news related to construction/real estate markets
Last week, construction industry news flow focused on the real estate measures centering on supply expansion announced by the new Minister of Land, Infrastructure and Transport Byun Chang-heum, detailed plans for pre-sales for the third New Town project, and an increase in SOC investment (specifically transportation projects). We also note that the Seocho-gu Apartment Pre-sale Price Review Committee decided to set the sale price for Raemian One Bailley at W17.18 mn per m2. Previously, a sales price of W14.82mn per m2 was suggested by the Housing & Urban Guarantee Corporation (HUG) in Jul 2020. However, according to the Ministry of Land, Infrastructure and Transport, 1) the value of the land is now estimated at W12.74mn per m2, reflecting a recent hike in land prices; 2) additional costs amount to W2.02mn per m2, and 3) the construction cost is estimated at W2.42mn per m2. This event demonstrates the government’s willingness to expand supply.