REF 2017-A-02 ISSN 2586-1484 Korea Real Estate Market Report Korea Real Estate Market Report PART 1. Market Trends Vol. 6 PART 2. ‌Housing Market Outlook in Second Editor Half of 2017 Korea Chae Mieoak Real Estate Editorial Staff You Eunchul Market Lee Junyong Lee Jiyeon Report Joo Seungmin Park Jinbaek Min Chulhong Jang Monghyun Vol. 6 Vol. KAB Real Estate Research Institute was established as a training institute of appraisal and assessment of KAB in 1989. It has ever since researched the techniques for appraisal and assessment, developed real estate statistics, and supported the government’s real estate policies. Now and in future, this organization will continue contributing to developing the national economy not for sale 06 through broad and in-depth research as well as KAB Real Estate Research Institute KAB Real Estate Research Institute Research Institute Research KAB Real Estate consultation services. 291, Innovalley-ro, Dong-gu, Deagu 41068, Korea Tel. +82-1644-2828 9 772586 148001 www.kab.co.kr ISSN 2586-1484 www.kab.co.kr Vol. 6 Korea Real Estate Market Report Trends in First Half and Outlook in Second Half of 2017 KAB Real Estate Research Institute KAB Real Estate Market Report Greetings KAB Real Estate Research Institute publishes the Real Estate Market Report Vol. 6 (Trends in First Half and Prospect in Second Half 2017). ‘KAB Real Estate Market Report’ publishes twice a year in the first and second half, provides the comprehensive and in-depth analysis of real estate market trends. And based on this, it aims to share a reliable market trend and changes for predicting the future tendency in the real estate market and contribute to the order of said market. In the first half of 2017, the real estate market demonstrated a similar stable trend in the 2016 housing market due to the increase of housing supplies. However, Due to the overheating of reconstruction markets in Gangnam and Busan, regulatory policies are being implemented to slow this down. With the grace period for the reconstructed extra profit return system to be terminated, the implementation of reconstruction businesses is being accelerated to avoid the extra profit return system, which is leading to the concentrated investment demand and increased prices. Excluding these political factors and influences, although there is an excessive level of housing supply volume to be concentrated in the Gyeonggi region in the late half of this year and next year, it is expected that this will absorb the rental demand in Seoul and other metropolitan areas, therefore maintaining the present stability will be maintained for a certain period. Also, following the 6.19 measures, with the monopoly restriction and reinforced regulations for loans in some overheated regions, the household debts management measures to be carried out in this August is expected to stabilize the actual demand market. In the meantime, the real estate market in 2017 has a higher likelihood of increased domestic interest rate following the additional plans by the US Fed to increase the interest rate. Due to these economic uncertainties, regulatory policies of the real estate market and influence from increased household demand, it is expected that the sales market will remain flat and the rent market will continue its stable trend. The Korea Appraisal Board will continue to reinforce multidimensional in-depth analysis through the KAB Real Estate Market Report, and provide comprehensive and fair real estate market analysis in a timely manner to contribute to the housing stability for the people and support policies for the advanced real estate market. Thank you. KAB Real Estate Research Institute President Chae Mie Oak CONTENTS PART 1 | Market Trends 1 Macroeconomy & Real Estate Market 2 Housing Market 15 Land Market 41 Commercial Real Estate Market 49 PART 2 | Housing Market Outlook in Second Half of 2017 63 KAB Real Estate Market Report Korea Real Estate Market Report P A R T 1 Market Trends Macroeconomy & Real Estate Market Housing Market Land Market Commercial Real Estate Market Macroeconomy & Real Estate Market Park Jinbaek Domestic Economic Trend Recently, the domestic economic state in Q1 is expected to show a continued economic recovery due to the bullish reversal of the economic growth rate, increased private consumption and increased facility investment from exports recovery. ○ Economic Growth Rate The economic growth rate in Q1 2017 has recorded 2.9% compared to the same period last year and increased by 0.5%p compared to 2.4% in Q4 2016. ○ Private Consumption Private consumption in Q1 2017 increased by 0.5%p compared to the previous quarter, showing recovery in private consumption. Figure 1-1 Real GDP and Growth Rate 9 400 350 6 300 250 2.9 3 2.4 200 150 0 100 50 -3 0 `03.1Q `04.1Q `05.1Q `06.1Q `07.1Q `08.1Q `09.1Q `10.1Q `11.1Q `12.1Q `13.1Q `14.1Q `15.1Q `16.1Q `17.1Q GDP (Real, original series, % same period last year) (Left) GDP (Market price, trillion won) (Right) Source: Bank of Korea 2 Korea Appraisal Board Trends in First Half and Prospect in Second Half of 2017 P A R T 1 Market Trends ○ Equipment Investment With the increased equipment investments in the manufacturing sector following the recovery of exports, the equipment investments increased by 12.4%p from the previous quarter to 14.4% in Q1 2017. Figure 1-2 Rate of change in Private Figure 1-3 Rate of change in Equipment Consumption Investment (Unit: %) (Unit: %) 5 25 20 4 15 14.4 3 10 5 2.0 2.0 2 1.5 0 -5 1 -10 0 -15 `11.1Q `12.1Q `13.1Q `14.1Q `15.1Q `16.1Q `17.1Q `11.1Q `12.1Q `13.1Q `14.1Q `15.1Q `16.1Q `17.1Q Rate of change in private consumption Rate of change in equipment investment (Real, compared to same period last year) (Real, compared to same period last year) Source: Statistics Korea Source: Statistics Korea Recently, in the contribution in growth by economic activity, increased proportion of manufacturing and decreased proportion of service are clearly observed while the proportion of construction that has shown a steady growth since 2015 has switched to decline in Q1 2017. ○ The proportions of contribution in growth by economic activity in Q1 2017 consist of 41.4% manufacturing, 31.0% service and 17.2% construction. ○ The proportion in growth contribution of manufacturing has declined steadily since Q2 2014 with the lowest level of 8.3% in Q2 2015 and then showed continuous and steady upturn trend with 41.4% in Q1 2017. ○ The proportion of the growth contribution of service has maintained a steady decline since its peak in Q4 2014. ○ The proportion of growth contribution of construction has recorded the highest from 3.8% in Q1 2015 to 25% in Q4 2016, but it decreased to 17.2% in Q1 2017. 3 Figure 1-4 Proportion of Growth Contribution by Economic Activity (Unit: %) 100.0 3.8 4.0 3.5 3.4 3.4 3.2 31.0 3.5 80.0 3.0 2.9 41.7 2.9 2.7 3.0 50.0 2.6 46.9 48.3 2.6 60.0 45.7 52.9 2.4 44.1 2.4 50.0 2.5 66.7 65.4 50.0 17.2 40.0 0.0 0.0 62.5 25.0 2.0 2.9 12.5 13.8 17.6 19.2 3.8 10.0 1.5 20.0 34.2 37.1 0.0 41.4 26.5 8.3 25.0 29.2 18.5 11.5 20.0 20.7 20.6 15.4 1.0 8.3 0.0 0.5 -20.0 0.0 `14.1Q `14.2Q `14.3Q `14.4Q `15.1Q `15.2Q `15.3Q `15.4Q `16.1Q `16.2Q `16.3Q `16.4Q `17.1Q Agriculture and fisheries Mining Manufacturing Utility Construction Service Growth rate (Right) Source: Bank of Korea Financial Market Trend Following the enforcement of the credit review guideline, the acceleration in liquidity has shown a rapid decline, but due to the maintained trend of low interest rates, liquidity is still quickly increasing, and with the reinforced LTV and DTI financial regulations, the increasing trend in liquidity in the latter half is expected to slow down. ○ With the continuous decline in interest rates and low interest rate policies, liquidity quickly increased. ○ Following the enforcement of credit review guideline in 2016, increase in liquidity fell, but with the low interest policies maintained, liquidity has increased as high as 5-6%. ○ Due to 6.19 real estate measures, LTV fell from 70% to 60% and DTI fell from 60% to 50%, and with the reinforced loan regulations, the increase in liquidity is expected to slow in the second half of the year. 4 Korea Appraisal Board Trends in First Half and Prospect in Second Half of 2017 P A R T 1 Market Trends Figure 1-5 Trend in Interest Rate and Liquidity (Unit: %) 12.0 4 3.5 10.0 3 8.0 2.5 6.0 2 1.5 4.0 1 2.0 0.5 0.0 0 `12.2M `12.11M `13.8M `14.5M `15.2M `15.11M `16.8M `17.5M Fluctuations in M2 (compared to same period last year, %), Left axis Base interest rate (%) CD interest rate (%) Source: Bank of Korea Although the increase in the US base interest rate provides the incentive to raise the domestic base interest rate to prevent the outflow of the currency, the possibility of an immediate increase in base interest rate will be low considering the domestic economy in the recovery state.