In an interview with Reuters on Monday, South Korea’s land minister, Park Sang-woo, highlighted that the country will not experience the same rapid home price growth as it did in the past due to an aging population and a slowing economy. He emphasized the need to promote public rental accommodation to improve housing accessibility.
Park Sang-woo noted the significant changes in the country’s demographics and economic growth, stating that the current environment with a 2% to 3% annual economic growth rate and an aging population with fewer children will prevent a repeat of past housing market booms.
South Korea witnessed a peak in median house prices in June 2021, following a 45% increase over five years. However, prices have since dropped by 19% due to aggressive central bank measures to control inflation.
The high cost of housing in South Korea has been a contributing factor to declining birth rates and marriages in the country. The fertility rate, already the lowest in the world, reached a new record low in 2023.
According to the land ministry’s data, the ratio of house prices to annual income in 2022 was 6.3, slightly lower than the previous year. In Seoul, the capital city, this ratio increased to 15.2, highlighting the challenges faced by residents in accessing affordable housing.
To address the affordability issue, the government has introduced measures such as providing cheaper mortgages for newlyweds planning to start a family. Additionally, plans are in place to improve connectivity in the wider Seoul area through a high-speed underground rail network, linking affordable housing markets on the outskirts to employment opportunities in the city center.
The government also aims to increase the availability of long-term public rental housing through private sector partnerships by easing regulatory constraints. Moreover, there will be initiatives to encourage young people to diversify their investment portfolio beyond real estate.
Park Sang-woo acknowledged the weak demand in the real estate sector and supported the financial authorities’ stance on restructuring unprofitable property projects. Concerns arose in December when Taeyoung Engineering & Construction, a mid-sized builder, had to reschedule its debt, indicating potential repayment challenges in the industry.
Addressing the issues in real estate project financing, Park emphasized the government’s efforts to stabilize the market amidst slowing demand and rising input costs. He highlighted the importance of mitigating these challenges to ensure a sustainable housing market in South Korea.
Overall, the government remains committed to implementing policies that promote housing affordability, address demographic shifts, and support economic stability in the real estate sector.
(Reporting by Jihoon Lee and Cynthia Kim; Editing by Sam Holmes)
