This blog post examines why real estate, particularly apartments, serves as a key indicator in the South Korean economy. It calmly explores how trends in housing prices, subscription applications, and new home sales signal developments for households, businesses, and the government.
Understanding real estate is key to seeing the South Korean economy
Unless you’re a Hollywood superhero, you can’t lift buildings or land and move them. That’s why these assets are called real estate (不動産), meaning ‘immovable property’. Conversely, ‘movable property’ is called personal property. Think of apartments and cars, respectively, to grasp the difference.
From an accounting perspective, it’s preferable to classify them more precisely and use accurate terminology. However, for someone just beginning to take an interest in economics, thinking ‘real estate = apartment’ is the easiest approach. There are two main reasons for this. The first reason is the composition of assets held by South Koreans. According to the latest social indicators released by Statistics Korea, tangible assets still account for around 75% of household assets in South Korea, with real estate comprising the vast majority of this. Financial assets, including stocks, funds, pensions, insurance, and cash, collectively hold a relatively low proportion.
Of course, not all real estate is apartments. Residential buildings like villas and officetels, commercial spaces, factories, and even land such as mountains and forests are all included in real estate. However, it is unlikely that someone without even one house would own other types of real estate first. Moreover, apartments still account for an overwhelming proportion of all housing in South Korea. Considering this reality, simplifying the understanding of the economy by focusing on apartments as the starting point is entirely valid.
The second reason is that many people own apartments, and simultaneously, many people aspire to own them. Given the intense public focus, apartments exert a significant influence on the broader economy among various types of real estate. A glance at the news reveals that most real estate-related articles revolve around apartments. Therefore, even at a stage where economic knowledge is not deeply developed, understanding real estate as apartments poses little difficulty in interpreting economic news.
Housing Prices: Uncomfortable but Unavoidable
When news reports say real estate prices are rising, homeowners first focus on ‘how much my assets have increased.’ Conversely, those without homes or money repeatedly agonize over ‘whether they can ever afford even one home in their lifetime,’ eventually concluding ‘life is unbearably hard’ and beginning to vent their frustrations and complaints about the world. Those currently without homes but contemplating a purchase split into two groups. One group takes on loans to buy apartments, hoping prices will rise. The other group decides against buying, then blames their past selves and criticizes the government for failing to manage housing prices as they watch real estate values climb.
Yet there’s one peculiar thing: almost no one praises the government when real estate prices rise. Instead, the more common reaction is to scoff, saying, “It’s useless for the government to step in and try to control housing prices.” That said, the government doesn’t receive praise when real estate prices fall either. Homeowners criticize the government as incompetent for ruining the economy, while those without homes rage that the economy is dying. Particularly, the more someone agonized over taking out a loan to buy a home, the more intense their anger becomes. Whether prices rise or fall, the government always ends up taking the blame.
As we saw earlier, the South Korean economy and real estate are inextricably linked. Whether we like it or not, acknowledging this reality is essential to properly reading the economy’s currents. Simply insisting that real estate prices “must rise unconditionally” or “must fall without fail” is an overly simplistic approach. Even when prices fall, whether this represents the market cooling down and stabilizing or plunging into a sharp downturn is an entirely different matter. Economic news and articles typically distinguish this difference using the terms ‘soft landing’ and ‘hard landing’.
Apartments are both living spaces and investment products. Therefore, when considering apartments, it’s difficult to separate their ‘living function’ from their ‘money-making function’. Both perspectives must be considered together. Since real estate is an immovable asset, ‘location’ is paramount above all else. The key factors are how well-developed the transportation conditions, educational environment, and daily convenience facilities are. The element of ‘brand’ is also indispensable. It’s not enough for an apartment to simply have a good location and sturdy construction. Even apartments built in the same location can have different values depending on their brand. Much like a luxury handbag, the value of the brand is reflected in the apartment’s price.
Just as the latest smartphones command higher prices due to superior features and convenience, newly built apartments also tend to be more expensive. However, it’s not uncommon for older apartments in prime locations to sell for higher prices than new ones. This is because they possess a scarcity value similar to antiques. The scarcity value of these older apartments ultimately stems from their location. Therefore, when a new apartment complex is built in a prime location, its price becomes significantly higher.
Economic issues related to apartments are also highly diverse. By carefully examining the terms appearing in news or articles, one can generally infer what issues they are addressing. When expressions like ‘overheating’ or ‘abnormal surge’ appear, it typically indicates an article expressing concern about the potential for apartments to become speculative commodities. ‘New towns’ or ‘redevelopment’ are deeply tied to real estate stabilization policies, while ‘capital gains tax’ or ‘property tax’ are closely linked to real estate suppression policies. This reveals the government’s perspective on the real estate market. Articles mentioning ‘construction companies’ or ‘construction industry conditions’ generally unfold from the corporate standpoint.
Loans are also an indispensable key element. Loans are practically a mandatory step for purchasing real estate, making them a crucial keyword not only for banks and the financial sector but also for households. From a household perspective, there is even more real estate news to consider. From pre-sales and investment to real estate taxes, various disputes, and the licensed real estate agent system, it’s difficult to list them all. These three key players in apartments and the economy are thus tightly intertwined, making it hard for any one side to drive change independently. Yet, no one advocates leaving the current situation unchanged. This is precisely why real estate issues are particularly complex and challenging.
Moreover, apartment issues cannot be viewed solely as economic problems. We must never forget that people actually live in these apartments. Everyday problems like noise between floors, parking issues, security guard employment, and package delivery are deeply intertwined with our lives. Thus, apartment problems—real estate problems—are economic issues, but simultaneously social and political issues. Therefore, we cannot turn away from real estate simply because it is difficult. From here on, let’s examine the procedures for buying and selling real estate, centered on apartments, and carefully trace how these procedures drive the economy.
How to Buy a New Apartment: Pre-sale and Subscription
Newly constructed apartments, or apartments built from scratch, always command high popularity.
As living spaces, they offer exceptional convenience, and as investment products, they boast high liquidity and investment value. These two functions are the core criteria for evaluating an apartment’s worth. If either is lacking, even a newly built apartment may see reduced popularity. This is why top-tier new apartments in provincial areas can sometimes be priced lower than older apartments in Seoul—their value as investment products is relatively lower.
When selling new apartments, the term ‘pre-sale’ is commonly used. If you come across the phrase ‘pre-sale information’ in the news, understand it as the sale of newly constructed apartments. A pre-sale announcement refers to publicly disclosing details related to the pre-sale, while the pre-sale schedule denotes the entire process from the start of sales for the new apartment, through the lottery, to contract signing.
So, once a pre-sale announcement is made, does it simply mean you check the schedule, pay the money, and buy the apartment? There is one more crucial condition required: ‘qualification’. It’s worth considering economically why qualifications are needed to buy a home. We’ve already examined multiple times that in a market economy, the price of a product is determined by supply and demand. If the supply of a certain product is limited, its price naturally rises to match the level of demand. So, shouldn’t apartment sale prices also be allowed to keep rising in line with demand?
The problem is not that simple. If sale prices rise without limit, only those who can afford the amount will be able to participate in the sale. Generally, people who already own a home are more likely to be wealthier than those who do not. If they compete under the same conditions, the opportunities available to those without homes will inevitably diminish. If homeowners repeatedly secure new apartments while non-homeowners continually lose out, the rich get richer and the poor get poorer, deepening inequality and destabilizing society. Ultimately, those unable to afford the prices will raise the issue that competing against those already in a privileged position is unfair.
Sales Announcement → Confirm Schedule → Verify Eligibility → Apply → Lottery → Results Announcement → Contract Completion
From a pure free-market perspective, allowing unlimited competition for apartment purchases might seem justified. Yet eligibility requirements exist because apartments are not mere investment commodities but essential spaces for ‘residence’. Unlike luxury goods like precious metals or designer items, which are non-essential, housing is indispensable for sustaining basic human life. The situation where people cannot find a place to live simply because they lack money is a very serious social problem. In South Korea, where a home is essentially an asset, being ‘homeless’ is highly likely to lead to inequality.
So, what about limiting real estate price increases to specific areas only? This too is unrealistic. This is especially true in a structure like South Korea’s, where once housing prices start rising in one area, mainly Seoul, they spread in a chain reaction to the metropolitan area and the provinces. The same applies to those who live in jeonse or monthly rental housing without purchasing a home. When home prices rise, jeonse deposits and monthly rents also increase. Ultimately, the housing costs ordinary citizens must bear keep rising. As housing expenses take up a larger share of income, households have no choice but to cut back on other expenditures. This directly leads to an economic downturn. As more people struggle to maintain their living space, the socially vulnerable population also increases sharply.
Society as a whole becomes unstable, like the calm before the storm. For this reason, the government establishes eligibility criteria for participating in housing lotteries, creating safety nets to prevent those without homes from being pushed out of society.
Apartments are highly useful and a long-proven investment product. While prices are somewhat high, they can also serve as a means for those who have diligently accumulated assets to expand their wealth. However, if apartment prices rise endlessly, those without apartments find it difficult to accumulate wealth no matter how hard they try. As a result, wealth inequality deepens further. Therefore, the government aims to distribute opportunities as fairly as possible by restricting eligibility for apartment sales, ensuring a certain level of wealth expansion potential. The apartment ‘subscription’ system is also part of this policy.
The subscription system provides participation opportunities to those meeting specific qualifications, then distributes the limited resource of apartments through a fair lottery among them. You’ve likely heard the term ‘subscription savings account’ at least once. These accounts are readily available at bank counters and are often cited as the first financial product new entrants to society should prepare. This is precisely why changes to the subscription system receive significant news coverage. The entire nation holds such high interest in the system. The stakes and vested interests involved are far greater than those of most entertainment programs.
“Benefits for Youth? Forties Boiling Over Expansion of Youth Subscription Quotas” (Maeil Business Newspaper, 2022.10.26.)
“500,000 public housing units to open for pre-subscription within the year… Opportunity for low-income households without homes to secure their own” (Seoul Shinmun, November 29, 2022)
The subscription system is not fixed but constantly evolves. To prevent any specific group from being excessively marginalized, the requirements and scope of benefits are adjusted as needed. In the first article, the group at the center of these benefits is ‘youth’. As real estate prices rise, the likelihood of young adults entering society securing their own home diminishes. In response, the government has stepped forward to expand the special supply quota for youth. However, a policy allocating more of the limited resources to youth is not welcome news for all generations. Those in their 40s, who have lived without homeownership for a relatively long time, may feel disadvantaged.
The second article focuses on ‘low-income households without homes’. Homeowners often desire additional properties, and the wealthier one is, the stronger the tendency to expand that wealth. In South Korea, apartments are a highly efficient means of growing assets. Those who have experienced profits through real estate particularly understand the value of newly built apartments. Furthermore, existing homeowners are often classified as asset holders, making it easier for them to secure more investment capital. In this context, the government is revising the subscription system to provide more opportunities for those without homes. This article, released just one month after the first, details adjustments to the policy’s target groups and allocation volumes, specifically considering the relatively disadvantaged 40-somethings. As the subscription system is a socially sensitive issue, it’s crucial to always keep in mind that its details can change frequently.
So, what should people who already own a home but have prepared a subscription account to purchase an additional new apartment do?
Articles related to this topic naturally emerge.
“‘To break or not to break’… Strategies for single-homeowners’ subscription accounts” (Asia Economy, 2022.08.18.)
As opportunities concentrate on non-homeowners, opportunities for homeowners diminish or vanish. However, there is a crucial fact to remember here: the wealthy already know how to increase their wealth and do not give up easily. This attitude and tenacity likely contributed significantly to their accumulation of wealth. As the earlier article title suggests, they analyze situations dispassionately, predict the future, and make strategic judgments. Even if they cannot immediately utilize their subscription savings accounts, they continue preparing with future policy changes or other opportunities in mind. While policies are implemented by the government, governments change every five years. Real estate policies and subscription systems can also shift depending on economic trends. If funds aren’t urgently needed right now, there’s no reason to hastily close a subscription account or delay opening one.
Let’s summarize what we’ve covered so far. To purchase a new apartment, subscription is required, and to subscribe, you need an understanding of the relevant system and a subscription account. However, it’s crucial to remember that knowing the system and preparing the account are merely necessary conditions; they are not sufficient conditions guaranteeing success.
Gauging the Market Through Sold-Out vs. Unsold Units
After subscription closes following a pre-sale announcement, articles analyzing the pre-sale’s success flood in. The more attention a particular apartment complex receives, the more such articles appear. If the pre-sale concludes successfully, headlines typically feature phrases like ‘Subscription Competition Ratio X to X’. During periods of overheated real estate markets, the competition ratio for some complexes can exceed hundreds to one. Conversely, if the word ‘undersubscribed’ appears in the headline, it means the number of applicants was lower than the number of units available, resulting in a failed sale. A high subscription competition ratio is often interpreted as a signal that the apartment is a promising investment product likely to yield high returns in the future. In other words, it suggests the apartment’s price is likely to rise.
Articles covering successful sales follow a largely formulaic structure. They describe crowds flocking to the site, express concerns about speculative fever, and then suggest that buying this apartment could yield a certain level of profit. Inevitably, they conclude with the phrase “concerns about a real estate bubble.” The message these articles deliver to readers is simple: “Shouldn’t you buy this house?” Regardless of the current economic situation or whether there’s talk of a bubble, the tone seems to ask, “What are you doing while so many people are buying homes?”
However, one must be cautious about unconditionally interpreting these articles as signs of a real estate boom. They could simply be enticing articles designed to stimulate demand as the pre-sale period nears its end. Rather than getting easily carried away by a single article, it’s more helpful to listen to the conversations of those around you. This is the quickest and easiest way to gauge the level of overheating in the real estate market. If real estate talk naturally comes up everywhere you go, it’s highly likely the market is already nearing its peak. At times like these, taking a moment to catch your breath is a necessary choice.
Conversely, there are also cases where sales fall short.
“Duncheon Jugong Unsold… Seoul’s ‘Invincibility’ Now a Thing of the Past” (Korea Economic TV, 2022.12.08.)
Myths like ‘the invincibility of conglomerates’ and ‘the invincibility of real estate’ are widespread in our society. The invincibility of real estate is further subdivided into ‘invincibility of subscription sales,’ ‘invincibility of Seoul/Gangnam/the metropolitan area,‘ and so on. Articles suggesting these invincibility myths are being shaken are interpreted by people as signals that ‘now might not be the time to buy a house’ or ‘the economy might be heading downhill.’ On the other hand, this could also be interpreted not as a simple economic downturn, but as the overheated real estate market returning to its proper place.
“Holding onto unsold units spells disaster… Construction companies delay sales amid real estate chill” (Chosun Ilbo, Dec. 12, 2022)
Articles on apartment sales serve as a key indicator for gauging the real estate market. To predict future apartment prices, examining sales performance is helpful. Winning a lottery for an apartment amid fierce competition is akin to being born with a silver spoon in one’s mouth. However, being born with a silver spoon doesn’t guarantee a secure life. Similarly, just because someone succeeds in securing an apartment doesn’t mean they will all reap huge profits from it later. It merely increases the relative likelihood. Conversely, if unsold units occur in a highly anticipated area or complex, it suggests the real estate market outlook may be unfavorable for the time being.
Now, let’s assume you’ve checked the pre-sale announcement, gone through various procedures, and won the lottery in fierce competition. Does that apartment immediately become ‘my home’? Is it time to rejoice, having boarded the wealth-building train? Absolutely not. This merely grants you the ticket to board the train to becoming a ‘homeowner’. Ahead lies the heavy, very real main line: ‘paying the sale price’.
