I believe this account is truly significant. I think it can completely change the history of the real estate business in South Korea. Even now, we are already seeing reactions, such as the actual transaction prices for the Mokdong reconstruction project, which are breaking previous records. I believe many construction companies will be eager to get involved, and they are already preparing for it. Among the first-generation new towns, there are areas with good business potential, which will be evaluated as beneficial regions. The transaction prices in these areas are likely to show strong performance. For general housing priced below 900 million won, I think you can purchase them as long as it falls within an appropriate multiple of your income. I encourage people to consider this. Recently, the amendment to the Housing Act has passed through the National Land Committee, and it states that reconstruction can now begin without a safety inspection. What impact will this have on the market? I really believe this account is truly significant.

I think it's a significant account to the point where I don't quite understand how the agreement was reached. I believe it can completely change the history of the maintenance business in South Korea. Previously, a safety inspection was a prerequisite for carrying out reconstruction projects. However, now reconstruction can proceed without that prerequisite, which means that the supply of reconstruction projects can be perceived as virtually unlimited. I assume that everyone will want to participate in reconstruction. Therefore, if obtaining 75% consent for the establishment of the association is not difficult, there won't be significant objections to the approval of the reconstruction association. Disagreements about reconstruction tend to arise more in the later stages of the project, but in the early stages, there is a consensus to move forward with the reconstruction and to establish the association without significant conflict before the project approval period. This really indicates a tremendous scale of reconstruction.

I think they might start pushing forward with the project. But is the safety inspection for reconstruction a bottleneck? Actually, the second bottleneck is the progress of maintenance projects by construction companies in our country. Currently, maintenance projects are monopolized by large domestic construction companies. However, I believe that policy makers think these companies have unlimited capacity. In reality, construction companies can only take on as many projects as the personnel in their housing business department. Ultimately, since the front end has been opened up, it is expected that a large volume of projects will proceed. However, construction companies must manage risks and cannot increase personnel indefinitely. If they proceed within their personnel limits, the amount of work will only be what they typically handle. Meanwhile, the number of associations will increase significantly. Therefore, these associations will incur various costs related to the association president, the executive committee, and other association-related expenses over the long term.

It seems that we will be heading towards a business environment with increasing sunk costs. Nonetheless, I believe that this will unfold starting next year, creating a market with a slight advantage for construction companies. Construction companies already have the upper hand. They are becoming the dominant players because the bidding pool is wide open. Furthermore, the Seoul city government revised regulations last year. Originally, the selection of construction companies would take place after the project approval. Now, however, it occurs after the approval of the establishment of the association. This means that as soon as the association is established next year, they can select a construction company or selectively approach those associations. The authority of construction companies is truly growing. Even now, construction companies are already in a strong position. When they say, We need to set the price for our apartment construction, the associations can only comply. Initially, they won't be as aggressive, and it may seem like they are willing to give everything to the associations.

It’s coming out now. The thing is, this is still the initial stage. The design changes will happen anyway, and there’s no way to prevent those changes. To be honest, even in the famous Dunchon Jugong case, the construction company’s request for an increase in construction costs was accepted, right? Everyone in the country was aware of that. So, in the beginning, construction companies will come out very favorably, and since there is a lot of work to be awarded, they will be even more selective in their contracts. The reconstruction associations that have deviated from this process will, in a way, be significantly delayed. So, next year, it seems that everything will unfold in a complex manner, and I personally wonder why the reconstruction project is being made into such a mess. There are measures that can give a boost to the reconstruction process, but ultimately, it’s about the reconstruction apartments.

The prices can only go up from here. So, after the passage at the end of September, we are already seeing reactions. For instance, in Mokdong's reconstruction, looking at the actual transaction prices, we can see new record highs being set. This indicates that areas previously hindered by safety inspection issues are expected to move towards obtaining approval for their associations. The anticipation is quite strong because the business feasibility seems to be fairly high. I believe many construction companies will be eager to get involved, which is why they are already making early moves. Additionally, this year and next year, under the aging urban planning law, leading districts will be selected by the end of this year, and as we implement the aging urban planning law next year, these areas will also have to decide whether to proceed with reconstruction under the aging planning law or the urban development law. Nonetheless, it means that they can proceed with general urban development law reconstruction. In fact, the first new towns are also...

The only reason reconstruction has not happened is the safety inspection. According to the current standards for the first new towns, 99% would fail the safety inspection. However, even if the safety inspection is not conducted, it is effectively made possible through a fast track. Among the first new towns, regions with good business potential will be evaluated as so-called favorable areas due to these changes in the system, and the transaction prices in these areas are expected to show strength. In the case of the first new towns, there was already a special law, and if the amendment to the Urban Development Act is added, it will further accelerate the pace. With the flexibility of being able to proceed in various ways, the situation has improved. Recently, the application for leading districts for reconstruction in the first new towns has been completed. Initially, it achieved a competition ratio of 6 to 1, which is quite successful. However, when looking at the goal of occupancy in 2030, while it would be great if it happens, I can't help but wonder if it will go according to plan.

I believe that the government's assurance of a 30-year residence is a deception. It is indeed a deception because the maintenance project is a private venture. Therefore, predicting the timing of adjustments in private projects is, to be honest, misleading, as it disregards the private sector. Whether the private sector can carry out the project at that pace is determined by the private business entity. Simply stating that it will be possible by 2030 is both a hope and a deception. In reality, there may be instances where the project can be completed even sooner, or it could take much longer. There have always been significant conflicts among the cooperative executive bodies, members, and construction companies regarding permissions in maintenance projects. If we accept that some level of conflict is inevitable, then the project may speed up or slow down, but the notion of 2030 is...

I think it's a bit unreasonable to insist on guarantees. In fact, when the government announces housing supply targets, it includes private supply targets, but I believe there's no need for that anymore. Private housing supply should be left to the private sector, and the government should only announce its housing supply plans from the public side. In the past, when they used to bundle these announcements together, it was because the private sector had to follow the government policies. However, times have changed, and I don't think we need to discuss that anymore. 

Regarding the redevelopment of the Ilsan New Town, you mentioned Mokdong earlier. The pace is expected to pick up a bit. Once the new zoning law is implemented, the entire Mokdong area will receive approval for the establishment of redevelopment associations next year. So, it seems like Mokdong will naturally progress faster. What do you think about the Ilsan New Town?

In the new city, a choice has to be made regarding whether to receive a specific floor area ratio or to follow the general urban planning law. This will significantly vary depending on the floor area ratio. Personally, I don't think it's a good idea to provide options; there should be no choices, and we should just go with what we have to. However, due to the new urban renewal law, the basic floor area ratios have been disclosed, and the urban redevelopment project plans have been announced by each local government. For example, in Bucheon, the area of Jungdong has the highest ratio, around 330%, followed by others at 315% and 300%, and so on. In these areas, it is believed that a higher general sale is necessary for the project's viability, which will lead to more urban renewal. Even if it goes towards urban renewal, the procedures will still follow the urban planning law. So, things are improving, indeed.

I think so. However, I know that the representative is quite frustrated with this question. On one side, there are theories suggesting a shortage in housing supply, and the number of new constructions is decreasing. Because of this, there are ongoing discussions that housing prices will eventually rise in the long term. What do you think about this? If there is a contraction in the fourth quarter, does that mean there was a shortage until the third quarter, and then suddenly an increase in supply in the fourth quarter? Also, compared to 2021, in regions that people currently prefer, I believe that changes in housing supply are not the main factor; rather, I think low birth rates have had a significant impact. In some local areas, there is absolutely no supply. Yet, in these areas, housing prices are not recovering. When you graph housing supply against housing prices, they simply move in tandem.

It's not about doing good deeds or anything like that; it's just that the supply curve looks like this, doesn't it? When housing prices go up, supply increases, and when housing prices go down, supply shrinks. However, actual housing supply does not lead the price graph; it follows it. So, I think it's time to shake off the specter of supply shortages. I believe this will remain the case moving forward. If we interpret the idea of supply shortages differently, ultimately, people spend their money based on their preferences when they have it. No matter what, they have their preferences, like I won't settle for anything less than new construction. These preferences are determined by the social context and the era. I believe that the current era and social context already reflect the low birth rate and long-term stagnation in South Korea. This has become evident this year. When I looked at loans and asset disposals, I found out where people were making transactions.

Dead man, it's a transaction. So, even though it hasn't been explicitly stated yet, the actions reveal that the preference system has changed significantly. Now, even in areas where there is no housing supply at all, people no longer prefer those places. Instead, they are favoring areas they believe will not disappear in the future. This shift in preference is, in my opinion, a response to the risk of urban extinction. 

In Seoul, there is no supply in the Gangnam three districts and in Mapo and Yongsan. Because there is no supply, people will continue to think that these areas will always have no supply. Therefore, when they have money, they will always try to invest in these regions. On the other hand, areas that are not in demand will be neglected. Ultimately, when we discuss the housing market, we are faced with the question of whether we are only talking about those robust demands or the entire market.

It's a difference, but I believe that the preferences of these people will not change significantly in the future. Therefore, if demand contracts in the short term due to lending regulations and the cooling of the asset market, I expect that this transnational market will also cool down. However, if money flows again in the future, where will it be spent? It's obvious where the money will go. So, I think the market will continue to operate this way. When I published Peak Out Korea at the beginning of the year, I referred to it as a peak-out bullish trend. I believed it was a peak-out bullish trend focused on core preferred areas to hedge against the risk of urban extinction for those who accepted ultra-low interest rates. I expect this trend to last for several years. It's not that there will be continuous bullish trends, but I believe this preference system will persist without change. The question of when there will be a significant change in this preference system will be in the more distant future.

I believe that we are approaching an era where our growth rate is heading towards zero, and I expect that at that time, there will be movements to escape from these regions. As a result, I foresee a significant slowdown in the overall housing market, and without loan programs, transactions will likely shrink considerably compared to the average. In the past, the housing market had a great deal of liquidity, allowing people to buy when they wanted and sell when they wanted. However, coming from a rural area and moving to Seoul, I find that buying and selling houses in the local real estate market is very difficult. This is because home ownership rates are high, and the turnover of assets is not very active. The market has stabilized significantly, so I believe we may gradually move in that direction. Therefore, it is important not to become overly immersed in real estate assets.

Now, the advice is just to quickly liquidate assets. When you were on our show last time, you mentioned that people who own houses should sell quickly if prices have risen significantly, and that they should sell when prices are high. You emphasized this point strongly. However, in core areas of Seoul, which are places that everyone wants to live in, the prices are likely to remain relatively stable until the peak-out you mentioned occurs. They will remain stable, but even in these areas, demand is not keeping up. The numbers will eventually resemble a pyramid, where demand cannot keep pace. So, even in those areas, transactions are not very frequent. Therefore, if you sell your apartment complex, the market may become somewhat contracted or enter a cooling phase.

I think many people find trading difficult. The Korean market has changed a lot now. Many people seem to remember the boom period of 2020 and 2021 and view the subsequent period through a similar lens. In 2020 and 2021, the benchmark interest rate and product interest rates moved in tandem. By 2022, the benchmark interest rate was lowered to 0.5%, which brought product interest rates down to around 1%. However, in 2022, the benchmark interest rate was raised to 3.5%, leading to an increase in product interest rates. But now, for the past two years, the benchmark interest rate has remained unchanged, while product interest rates have already decreased by 150 basis points. Currently, the benchmark interest rate and product interest rates are diverging, yet many still believe that product interest rates will continue to move in accordance with the benchmark interest rate. Therefore, over the past year or two, this trend of divergence has been evident.

It seems that even if the benchmark interest rate is lowered, it will take a long time for the product interest rates to decrease by the same margin. Additionally, a more significant change is the declining birthrate, which adds another layer to this situation, resulting in a shift in preferences. Consequently, the preference system is changing, and there is a disconnection in the benchmark product interest rates. I believe that the framework for interpreting the market needs to change. As I mentioned, ultimately, money flows only into preferred areas, while it doesn't flow well into non-preferred areas, leading to an overall contraction in transactions. If lending regulations are relaxed again, money will flow back into preferred areas, creating a repetitive pattern. Some may view this as a bullish market because prices keep rising, but from a broader market perspective, I don't think the indices will continue to perform well. This is the context in which I'm speaking.

Now, I would like to summarize the discussion. At this point, I want to ask how both non-homeowners and homeowners should respond. Specifically, for those considering purchasing homes priced between 900 million and 1.5 billion won, what would be the best approach? It's important to note that, statistically speaking, homes priced at 900 million won are considered high-priced properties. Homes priced below 900 million won are categorized as regular homes. I believe that for high-priced properties over 900 million won, there is a significant correlation between loan policies and the asset market. Generally, properties priced over 1.5 billion won are classified as ultra-high-priced homes. We refer to trophy properties, which are apartments located in the Gangnam area, as trophy homes, and these are typically valued at over 2 billion won. As for regular homes priced below 900 million won,

I think you can just buy within an appropriate multiple of your income. An appropriate multiple is somewhat subjective, but I recommend that your income be multiplied by six. If it exceeds eight times your income, the interest costs from your mortgage will exceed 25% of your net income. If you spend more than 25% of your income on housing costs, living can become quite difficult. 

But isn't a multiple of six too low? If your income is 50 million won, that would mean a house price of 300 million won, right? Yes, that's actually normal. If you go beyond that, particularly over eight times your income, you start to overextend yourself. This often leads to needing parental support or taking on more loans to acquire property. The fluctuations in asset prices can create a significant disparity compared to your income, which can affect psychological factors related to the housing market.

I believe that stability is decreasing. Secondly, when it comes to purchasing high-priced or ultra-high-priced properties, I think it ultimately depends on the asset market. If you are buying for actual residence, I believe you should purchase within an appropriate multiple of your income. However, if you are buying as an investment, I would advise against it.

Understood. Moving forward, what indicators should we pay attention to in the real estate market? There are many aspects to consider regarding the macroeconomic environment. For actual demand consumers or market participants, what points should we focus on when assessing the real estate market?

Yes, in a state where the asset market is synchronized, the key macro indicators are GDP, lending, and asset market indices such as domestic stock and real estate indices, as well as U.S. stock indices. The price indices of these products have become very important. In the past, there was less focus on these external products or market indices.

I didn't think it was that significant, but now it has become a situation where we need to pay a lot of attention to the high correlation that is emerging. In addition to what we've seen before, I would like to say something to those interested in the real estate market, particularly regarding the Nasdaq and S&P and the downward trends in the U.S. indices. I would recommend staying away from real estate cafes and communities. I believe that breaking free from the comparisons and gaslighting that you repeatedly encounter through these cafes and communities is a path to mental maturity and happiness. In reality, there's no need to rush. Many people in their 30s and early 40s are taking on excessive loans to acquire homes, and they feel the need to continuously track the actual transaction prices of properties and observe changes in asset prices.

What really matters is that I think about the digital numbers I see. So, I want to advise you not to get too caught up in that. It’s okay not to be overly influenced by comments on the real estate community online. As the weather gets colder and the real estate market becomes a bit chillier, we don’t know if warmth will return or if it will remain desolate. However, while talking with CEO Choi today, I realized there are many things to consider regarding what standards we should set. Thank you, CEO Choi, for your hard work today, and please come back again next time. Thank you.

주택 매수, 자기 소득의 ○배까지만 고려하세요 [채상욱 대표 2부]

드넓은 경제 바다에서 지식의 돛을 달아드립니다.

양영은 기자
-서울대/MIT 슬론 경영대학원
-경제부, 국제부, 정치부, 문화부

장혁진 기자
-고려대 미디어학부
-경제부(금융·유통), 정치부, 사회부, 문화부 


주택 매수, 자기 소득의 ○배까지만 고려하세요 [채상욱 대표 2부]

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