[Economy Policy Zoom-In] "Dual-Income Couples in Their 30s and 40s Now the Core Force in Real Estate... Government Must Communicate Closely with the Market"

"Not 'Real Estate Invincibility,' But 'Apartment Invincibility': Desire Is Concentrated on Apartments"

"'Gangnam Invincibility' Narrative Bubble Is Deflating... Generational Shift Ahead"

"Supply Should Be Rapidly Expanded Through Officetels

Won-gap Park, Senior Expert at KB Kookmin Bank, is being interviewed by The Asia Business Daily on the 21st at the KB Kookmin Bank Asset Management Center in Jung-gu, Seoul. Photo by Jinhyung Kang

"Apartment prices in Seoul in the 1 billion to 1.5 billion won range are soaring. Currently, high-income dual-income couples in their 30s and 40s are the main disruptive force and key demand group, creating significant polarization and segmentation in the real estate market."

"The government needs to communicate closely with the market to calm 'anxiety sentiment.' It's unfortunate that people without homes are being pushed into buying due to a shortage of rental properties and rising rental prices."

Park Won-gap, Senior Specialist in Real Estate at KB Kookmin Bank and one of South Korea's leading real estate experts who has analyzed the market for over 30 years, shared this assessment of the current real estate landscape.

Regarding real estate policy, Park argued, "No matter how quickly you try to increase the supply of apartments, it always takes time. Therefore, the government should support and rapidly expand the supply of so-called 'fast food-type' housing such as officetels and urban-type studio apartments." He further emphasized, "Stabilizing the rental market is even more urgent than stabilizing the transaction market. Corporate-owned private rental supply is absolutely necessary to maintain a stable rental market without disrupting the existing housing market."

On the recent price declines of ultra-high-priced homes in Gangnam, he explained, "Due to the government's real estate policies and accelerating aging, elderly people without income from cash flows are either reducing the number of homes they own or selling a single home to convert it into financial assets. However, the drop in core area prices will not become a long-term trend; generational shifts to those with economic power will happen actively."

-You have analyzed Korea's real estate market for over 30 years. From a broad perspective, how do you view the current landscape?

▲The so-called 'invincibility' of real estate is often misunderstood; in reality, it's the 'apartment invincibility' myth that persists. Land, commercial properties, knowledge industry centers, for-lease hotels, and small buildings—these niche assets have become burdens. The focus of desire now is solely on apartments. Even villas are only sought after if they're in redevelopment zones—i.e., with the potential to become apartments. Last year, apartments accounted for 78.5% of all housing transactions nationwide. In Seoul, it's 65.6%, but in Gwangju it's 93%, Daegu and Ulsan 91%, Busan 84.4%, and Gyeonggi 81.7%. Apartments are the most advanced form of housing in the 21st century—there is nothing as modern and comfortable. Because they're standardized and uniform, they're almost like quasi-financial products. They can be bought and sold anytime and serve as a store of value.

-Are there any other noteworthy trends?

▲Market flows are as fast as lightning. Likely because of the smartphone era, prices drop faster than expected and rebound more quickly, too. It's like watching a herd of elephants stampeding at 100km/h. That's why the statistics often don't add up; there's often a gap of more than six months between sample statistics and real transaction prices, leading to so-called 'lagging statistics.'

Today's generation is the most financially savvy in history—almost addicted to investing. When the government sends a signal to the market, people don't just accept it—they ask how they can use it to make a real estate investment, acting out of self-interest. For example, reconstruction regulations are supposed to reduce profits and thus decrease demand and prices. But if people interpret it to mean supply will decrease, prices paradoxically go up—even under tighter regulations.

Finally, the rise of high-income dual-income couples in their 30s and 40s as the main demographic is changing the landscape entirely. They are both the disruptive market force and the central demand group, driving enormous differentiation and segmentation. The income gap among peers is widest in their 30s. There’s even a phrase, 'marriage leverage,' because loans are much easier to get for couples. For some, it's almost as if they are getting married just to buy a house. According to KB Kookmin Bank's statistics, the price-to-income ratio (PIR) of housing to household income has fallen below 10—meaning the price of a house is less than 10 years' household income. As of the second quarter of this year, Seoul is exactly at 10, Gyeonggi is 8.5, and Incheon is 7.8. In 2022, Seoul's PIR was 14 to 15.

-It seems that a lot of desires are projected onto the idea of owning a home in Korea. The desire to buy a home before it's too late and make a lot of money seems strongest.

▲The duality toward real estate is extremely pronounced. Real estate investment fever and real estate aversion exist simultaneously. Seeking to profit from real estate is the most extreme form of ownership desire. The desire itself is direct and blatant, but expressing it too brazenly often provokes backlash. That's why people say, "I'm not speculating," "I'm buying to live in," or "I only have one house; why am I being punished?" In this sense, real estate is not like samgyetang (chicken soup), but bosintang (dog stew)—something people consume in secret. The desire to own real estate at its height still hasn't emerged from its shadowy, secretive world. There's no such thing as 100% end-user demand. Even if a purchase starts as an end-user buy, if surrounding prices skyrocket, desires change. Demand can quickly shift to speculation. It's called an infinite chain of desires. In the end, your desire is actually infused with the desires of others.

-In Korea, it's common to ask where someone lives, even when meeting for the first time. Whether the house is owned, rented, an apartment, or a villa seems to determine social hierarchy.

▲The most prominent feature of capitalism is upending values. The home you live in (home) becomes a house you buy (house). Even works of art are converted into assets. People are used to reducing apartments to mere price tags.

-You can't deny that; it's reality. There's no other choice?

▲Denying that would be like 'wearing a gat (Korean traditional hat) while riding a motorcycle.' Many who believe a house is always a home are not grounded in reality. I've seen many people end up badly by going against most people. That might only be possible if you're buying a country home.

It's a question of how much you accept human desire and materialism, but you should be able to moderate it. That's why I talk about balancing home and house—keep it at 50-50. You should increase the proportion of home compared to now. That's because, with such high volatility recently, the more your perception leans towards home, the less stress you experience.

-Under the Lee Jae-myung administration's real estate policy, stricter loan regulations and tax revisions are targeting homes priced above 3 billion won. Currently, prices of ultra-expensive apartments in the three Gangnam districts have dropped, but mid-to-lower-priced apartments in Seoul priced between 1 billion and 1.5 billion won have risen.

▲A taxable standard of 600 million won is estimated to correspond to a market price of about 3.5 to 3.9 billion won. Nationwide, homes priced above 3 billion won account for about 1% of the total—which is about 168,000 households. Properties above 4 billion won make up 0.4%, about 65,000 households. For a long time, Gangnam apartments were regarded as 'tent pole' areas—leading indicators and safe haven assets for Seoul and the metropolitan area.

It is unusual for core areas to fall first due to heavy tax increases. For example, even when capital gains taxes for multiple-home owners were raised under the August 2, 2017 measures, Gangnam prices rose while the outskirts stagnated. But now, there are more elderly people sensitive to tax increases. In 2017, seniors accounted for 14% of the total population; this year, it's 22%. In the 2024 comprehensive real estate tax, those aged 60 and above paid 57% of the total. The ratio of rents to transaction prices is in the 30% range, indicating that sale prices are very high. Looking at it all, perhaps the 'Gangnam invincibility' is nothing more than a narrative bubble.

As for the response of the elderly, either multiple-home owners are reducing the number of homes they own, or high-priced single-home owners are downsizing or shifting funds into financial assets. However, I do not expect the discounting of core areas to continue as a long-term trend. Rather, generational turnover will accelerate among economically capable individuals. If that happens, Gangnam will truly become 'a league of their own,' protected by its economic moat. The rise in prices of mid-to-lower-priced apartments in Seoul can be explained by the purchasing activity of high-income dual-income couples in their 30s and 40s, as I mentioned earlier.

Won Gab Park, Senior Specialist at KB Kookmin Bank, is giving an interview with The Asia Business Daily at the KB Kookmin Bank Wealth Management Center in Jung-gu, Seoul on the 21st. Photo by Jinhyung Kang

-How do you evaluate the recent loan regulations? For expensive houses, it feels as if buyers are being told to pay with their own cash, not loans.

▲Young high-income households targeting areas like Mapo, Yongsan, and Seongdong—often collectively called 'Mayongseong'—protest that 'the ladder has been kicked away.' They say, "We still have 20 to 30 years to work and repay a loan, so why are loans being closed off to us?" Other than wealthy individuals, it's now almost impossible to enter the Gangnam or Mayongseong areas. However, focusing too much on individuals can easily lead to a lack of balance. We also need to consider housing stability for the community and a soft landing for household debt. Realistically, there can never be a perfect policy that satisfies everyone.

-That's a precise point. Whatever real estate policy the government implements, stakeholders' interests are all different. About 50% of people don't own homes, and among homeowners there are those living in Seoul, and even within Seoul, Gangnam homeowners, owners in outlying areas, apartment owners, villa or single-home owners, and more. There are also owners in regional areas. Those who are satisfied stay silent, while those with complaints speak the loudest. The media, believing it should be critical, amplifies complaints even further.

▲Every policy always carries both positive and negative aspects. There are always side effects or costs to any government measure. Economics is a discipline where interpretations depend on one's perspective. The government should do its best to avoid producing innocent victims, but in reality, there is no perfect, magical solution that satisfies everyone.

So which should be prioritized: the individual or the community? Policy objectives often conflict. Just because personal interests are maximized doesn't mean the community's benefits are maximized; that's the so-called fallacy of composition in economics.

Ultimately, policy decisions must weigh the positive and negative effects on the overall national economy—focusing more on the positive side. A balanced perspective between individual and collective interests is needed, rather than leaning too much toward one side.

-Should we say that regulating multi-home owners through heavy taxes is always wrong?

▲Perceptions of multi-home owners differ greatly depending on whether the market is booming or crashing. When the market crashes, multi-home owners play a vital role as a robust source of demand, so sentiment toward them isn't as negative. In particular, those who purchase unsold inventory in oversupplied provincial markets are even valued.

However, in supply-scarce regions like Seoul, especially when prices are skyrocketing, public opinion turns against them. Even in the Joseon Dynasty, when homes were in short supply, high-ranking officials were regulated to own only one property—a situation not unlike today. Thus, attitudes toward multi-home owners always depend on the circumstances.

It's now rare for anyone to own multiple homes in Seoul, which is a regulated zone. The acquisition tax alone is 8%, and sale prices are simply too high. Market logic isn't always the best answer; after relaxing regulations, there may be strong repercussions. Good intentions don't always lead to good results.

To stabilize the rental market without disrupting the existing housing market, there must be sufficient supply of corporate-owned private rentals. The government needs to provide aggressive tax benefits and financial incentives to encourage companies to build long-term rental properties.

-Every time new real estate policies are announced, people say, "Supply is the key. There's not enough supply." Isn't it inevitable that supply is somewhat limited?

▲You can and should control demand with tax and loan regulations, but in the end, supply is the most honest way to stabilize the demand-driven market. However, consistent land releases are necessary, and it takes about 10 years to build an apartment. Many people talk about fundamental solutions, but these often remain in the realm of ideals. Fundamental solutions come with significant sacrifices and side effects. Proposals like building apartments on the Yongsan Park site are the same. Every policy needs to be based on common sense and reality. The recent tax amendments and surveys of farmland suggest that policymakers are running ahead of reality. There needs to be meticulous communication with the market. When ideological debate takes over, you lose your sense of balance.

The most practical approach to speed up supply is 'fast food-type' housing, such as officetels and urban-type apartments. These units especially fit young women's need for security, which is now almost an obsession. Urban-type housing allows for high floor area ratios, maximizing supply, and should be further deregulated.

-Recently, sharp increases in rental prices have also become an issue.

▲Stabilizing the rental market is more urgent than stabilizing the sales market; the two are intertwined. As rental listings dry up, people are simply buying homes outright. Even if rental instability spreads in Gangnam, it doesn't necessarily stimulate the sales market. But it's different in Gangbuk, Gyeonggi, Incheon, and similar areas. Right now, home prices are rising due to a shortage of rentals. In the past, there was a '60% rule'—if the rent-to-price ratio exceeded 60%, sale prices would rise. But nowadays, even when the ratio is below 60%, prices keep going up. As rentals become scarce, people are compelled to buy. Those who are buying now are, in a sense, unfortunate.

-You mean it's unfortunate because they're being pushed to buy?

▲Today, those who already own homes aren't buying another—it's the people without homes being forced to buy. When anxiety swells in the market, fundamentals are abandoned and things can go off in completely unexpected directions. That's why the market and the government send signals to each other. For the government's signals to have effect in the market, a strong ecosystem of trust must be built. We must acknowledge the diversity of underlying causes and read the minds of the participants. Policymakers need to think about how to guide disruptive groups such as high-income dual-income couples in their 30s and 40s who have strong purchasing power.

-Earlier, you mentioned ideological issues. What is your opinion on raising property holding taxes such as the comprehensive real estate tax for homes worth over 3 billion won? About 50% of households are non-homeowners who may welcome such measures.

▲The most distinct characteristic of real estate in Korea is that it creates an 'angry society.' Non-homeowners feel anger due to soaring rents and a sense of deprivation and despair. Single-home owners feel angry because they're blocked from upgrading to a better home. Multi-home owners say, "I'm supplying rental homes; tenants live because of me, so why am I being penalized?"

Korea is said to have the highest uncertainty index in the world. Taegyun Heo, Professor of Psychology at Korea University, cites uncertainty avoidance as one of six defining psychological features of Koreans. Strong uncertainty avoidance manifests in two ways: black-and-white thinking, where the middle ground is intolerable, and authority bias, where people blindly follow opinion leaders or influencers according to their interests when they lack self-assurance. In the end, we have to learn to withstand uncertainty—but Koreans struggle with that. That's why real estate policies such as holding taxes move to extremes.

Won Gab Park, Senior Specialist at KB Kookmin Bank, is being interviewed by The Asia Business Daily at the KB Kookmin Bank Asset Management Center in Junggu, Seoul, on the 21st. Photo by Kang Jinhyung

-As interest rates are rising, doesn't this have a big impact on housing prices?

▲Interest rate increases have a cumulative effect, rather than an immediate one. Interest rates are like gravity in the asset market—usually invisible, but hugely impactful when they reach a tipping point. The current benchmark rate is 3%. There are expectations that the Bank of Korea could raise it another 0.25 percentage points. In early 2023, the base rate rose to 3.5% and remained there until August 2024 before being cut in October. If rates exceed 3.5%, Korea, too, enters an era of high interest rates. That's why some are concerned we might see a repeat of the housing price plunge in 2022 (when transaction prices of apartments in the Seoul metropolitan area dropped by 22.05%).

However, the government's proposed 'super budget' for next year—about 821 trillion won—could also inject liquidity into the market, potentially offsetting the pressure from higher interest rates.

-What would you say to 30-something non-homeowners about buying a house? It seems having a home is still crucial, but lately young people are turning more to financial investments like stocks than to real estate as a wealth-building strategy.

▲There is no one-size-fits-all answer. You can take the direct route, stretching yourself with loans to buy a home, or succeed in financial investments and buy a home as an indirect strategy. Others may simply buy when they need to, rather than timing the market. In financial investments, your past three years' performance provides a useful benchmark. Consider your investment mentality and competitiveness.

Regardless, housing is the key factor behind asset inequality. According to a 2020 survey by the Korea Research Institute for Human Settlements, housing accounted for 67% of the factors behind wealth inequality. Where you buy and what kind of home you purchase gives rise to residential assetization and 'housing capitalism.' However, today's world is characterized by the normalization of non-face-to-face investment. Trends now are more about stocks and cryptocurrency. In a real estate-obsessed society, provinces lost out, but this might overcome regional disadvantages.

This content was produced with the assistance of AI translation services.