If the rate of Australian home price rises is bringing a tear to your eye, you are unlikely to find much sympathy from South Koreans trying to buy in their countrys capital.
- Seoul apartment prices rose 22 per cent in 2020
- It takes the average Korean household 14 years of income to buy a Seoul apartment
- A land speculation scandal involving senior government officials has outraged Seoul residents
Seouls property market is on a tear. Apartment prices in the metropolis of nearly 10 million people rose by an extraordinary 22 per cent in 2020, outstripping all other cities in Asia.
It is not only a problem for those trying to get a foot on the proverbial property ladder. It is also causing major problems for the government, and is a risk for the countrys future prosperity.
Seoul residents Park Jong-hui and Oh Hye-jin thought they had set a reasonable budget when they started looking for a place to live with their three-year-old son Park-jay.
«We had a price range in mind at the beginning but as we searched, the prices just kept going up and up,» Jong-hui said.
Seouls real estate market by the numbers
- The average Seoul apartment will currently cost you about $1.3 million
- In comparison, the median price for a unit in Sydney is about $755,000
- The average house price in Australia is $624,997
- Seoul suburb Gangnam has the highest prices, with apartments averaging about $1.65 million
- The most expensive apartment complex in Korea is Seouls Hannam THE HILL, home to K-pop band BTS, where units cost up to $8.5 million
Even as the global pandemic hurt the economy and imperilled jobs, demand was outstripping supply and they kept being outbid for every place they were interested in.
After months of disappointment, they have finally managed to secure a place.
But it is much further from Seouls centre than they would have liked. In the traffic-plagued city, it means a long commute.
«We have to move outside Seoul,» said Jong-hui.
«It will now take one hour and a half to go to work, which is disappointing.»
The Parks are relieved they have managed to secure their own place, even if it comes with a massive mortgage.
«The reason why we decided to buy a house now is because we think house prices will just keep going up.»
How interest rates and committed singles changed the market
There are multiple drivers of this Seoul price boom.
Many cities around the globe are seeing prices grow briskly as borrowers take advantage of low interest rates. In South Korea, the official cash rate is at the record low of 0.5 per cent, slightly higher than Australias 0.1 per cent.
But there are also local factors at play. Price rises in South Korea are not uniform, and Seoul is in a league of its own.
Seouls capital is the driver of economic growth in the country, and people want to be near well-paying jobs.
There has also been a shift in demographics. Between 2016 and 2019, single-person households in South Korea rose by 13 per cent, driving up demand for apartments for people living alone.
But experts are also worried that it is not just a case of organic demand outstripping supply.
Why Seouls housing market is at risk of over-heating
Investors have seen the potential for huge profits and are now ploughing even more money into the market in the hope of making their own fortune.
Economist Kim Gyu-young from Korea Investment & Securities says the risk is in creating a bubble that inevitably bursts.
«People have made really big profits in a very short time,» she said.
«This makes more investors and consumers want to jump into the real estate market.»
Koreans only need to look across the East Sea to see the danger of unsustainable property price rises. Japan experienced one of the greatest property bubbles and crashes in recorded history.
After World War II, the value of Japanese real estate skyrocketed, with a particularly frenzied period during the 1980s. Investors ploughed cash into the market, seemingly thinking prices would just keep rising.
Infamously, at the property markets peak, all the land in Japan — which is roughly the size of California — was worth four times the value of all the land in the United States.
Then the crash came.
Prices plummeted. Japanese home owners saw their properties lose 70 per cent of their value between the peak in 1991 and 2001.
Korean couples cant afford a house and a baby
But it is not just the risk of people losing cash by overpaying on property that is worrying policy-makers.
Sky-high home prices are being blamed for one of the major societal issues in Korea today: its shrinking population.
Last year, South Korea recorded the lowest fertility rate in the developed world, at just 0.84 expected babies for each woman.
That is about half the rate in Australia.
Raising a child is expensive but it has become particularly hard with a massive mortgage, according to Oh Hye-jin.
«My husband wants to have a second child but I dont think its possible considering how much well now be paying back,» she said.
Frustration turns to anger amid land speculation scandal
With prices rising so quickly, there is a lot of money to be made by people who might have inside information about where and when rezoning of land might take place.
A major land speculation scandal is currently outraging the public. Senior public servants are accused of using their positions and access to information to make big profits on land deals.
So far, at least 20 bureaucrats are being investigated. Two of the accused have taken their own lives.
President Moon Jae-in has seen his approval ratings collapse, not just because of the land speculation scandal, but also because of his inability to do anything to cool the housing boom.
But economist Kim Gyu-young said Mr Moon has tried — without success.
«This government has raised tax, restricted loans and punished speculators to deal with prices,» she said, noting that no measure had halted the price rises.
A lottery for price-capped housing causes a frenzy
The government is also trying to cap the prices at some specific developments, but that has presented its own problems.
Demand for one new development to the north-west of Seoul that the ABC visited had people snaked out the front waiting for the chance to inspect.
«Spots are fully booked and theres people waiting without reservation in case someone cancels,» developer Shin Dong-jin told the ABC.
People have to enter a lottery for the chance to purchase the price-capped apartments.
Former Brisbane resident Lee Jeong-sook was one of those inspecting.
She was not feeling optimistic about her chance of buying in this development — or anywhere else.