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Polarization in housing prices is intensifying as the difference between the highest and lowest 20% of prices in Seoul reaches a historic high of more than six times. The situation is the result of a sharp rise in extremely high apartment prices last year in Seoul’s Gangnam area and the districts of Mapo, Yongsan, and Seongdong -- collectively referred to as “Ma-yong-seong.” The next question is whether measures taken by the central government to ban mortgage loans for apartments costing over 1.5 billion won (US$1.26 million) in its “housing market stabilization measures” last Dec. 16 can help to rein in the polarization trend.

An examination of Korea Appraisal Board (KAB) housing price figures on Feb. 18 showed a quintile ratio of 6.1 for the average selling price of apartments in Seoul as of Jan. 13, representing its highest level since the first such survey was conducted in January 2012. The quintile ratio, which is calculated as the average for the top 20% of selling prices (fifth quintile) divided by the average bottom 20% (first quintile), is an indicator showing disparities in the prices of high-priced and low-priced housing. A larger ratio translates into greater polarization between the top- and bottom-ranked housing prices.

Quintile ratio of average apartment prices in Seoul

The widening gap between the top- and bottom-ranked housing prices in Seoul stems from a stratospheric increase in the prices of luxury apartments last year, with market values ranging from 1.5 billion (US$1.26 million) to over 2 billion won (US$1.68 million). The average selling price for an apartment in the fifth quintile was calculated at 1.61 billion won (US$1.35 million) in January 2019; by January 2020, it stood at 1.81 billion won (US$1.52 million), representing an increase of 12.3% in the space of a year. Meanwhile, the cost of an apartment in the first quintile actually fell by 5% from 312.94 million won (US$262,932) to 297.15 million won (US$249,666).

The quintile ratio for Seoul apartment prices previously shrank from 4.7 in January 2012 to 4.3 in January 2015, when the real estate economy was in a period of stagnation. Since 2018, it has risen to over five, maintaining annual levels of 5.1-5.3 as of last year before passing six for the first time in 2020. The recent steep rise in the quintile ratio is seen as largely reflecting a rapid increase in Seoul luxury apartment prices over a short time, with apartments in the four Gangnam districts (Gangnam, Seocho, Songpa, an Gangdong) rising by 5.2% in the four months between September 2019 and January 2020.

The real estate industry is turning its attention to whether a full-scale ban on mortgage loans for apartments with market prices above 1.5 billion won (US$1.26 million) -- introduced by the government in its “December 16 measures” last year -- will have an effect in mitigating polarization between high and lower apartment prices.

According to the Ministry of Land, Infrastructure and Transport (MOLIT), the rate of increase in selling prices for Seoul apartments valued at over 1.5 billion won, which reached 0.4% as of the third week of December 2019, has been in a slight decline since the fifth week of December and was calculated at -0.13% as of last week. This amounts to evidence of the effectiveness of the ban on loans for apartments worth more than 1.5 billion won.

“If the prices of apartments costing over 1.5 billion won continue steadily dropping while mid- to low-range apartment costing less than 900 million won (US$756,264) show a slight increase or a holding pattern, we could see some mitigation of the polarization in Seoul apartment prices,” predicted Kim Gyu-jeong, a real estate research analyst for NH Investment & Securities.

“But since this is the result of a temporary drop in demand for apartments costing over 1.5 billion won because of the difficulty in obtaining loans, rather than a situation of lots of urgent sales coming on the market, we’re going to need to keep observing the market trends a bit more,” Kim advised.

By Choi Jong-hoon, staff reporter

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