Apartment price gap widens to record high amid overheated housing market

Apartment complexes in Seoul. (Yonhap)

The price gap between high and low-priced apartments nationwide widened to the highest level in 12 years in December last year, showing deepening housing polarization in the country, according to data Wednesday. 

Apartment prices of the top 20 percent group reached an average of 951.6 million won ($861,198) in December, soaring by more than 200 million won from a year earlier, the monthly housing price trend report released by KB Kookmin Bank showed. Meanwhile, prices of low-cost apartments in the bottom 20 percent band recorded 111.9 million won on average in the cited month, up 3.75 million won on-year.

The ratio of prices between the two groups stood at 8.5 in the cited month, sharply up from 6.8 estimated a year earlier. This marked the largest figure since December 2008, when it recorded 8.1, the report said. 

The ratio is measured by dividing the average price of the highest 20 percent of apartments nationwide by the lowest 20 percent, an economic indicator of housing polarization within a country. The higher the number, the wider the price gap between the most expensive and cheapest apartments. 

Experts say the widened price gap was mainly driven by ample liquidity amid the record-low interest rate environment. 

“People’s increased purchasing power triggered by the current abundant liquidity was reflected in the latest price increase of premium houses in metropolitan areas,” said Park Won-kab, a real estate team head at KB Kookmin Bank.

By region, Daejeon saw its housing polarization reach 5.7, followed by Ulsan (5.4), Busan (5.3), Gyeonggi Province (4.8), Daegu (4.6), Seoul (4.2) and Incheon (3.9).

In the greater Seoul area, the ratio of prices between the highest and lowest 20 percent apartments declined on-year from 4.8 estimated in 2019 because prices of low and mid-priced apartments appeared to have increased at a faster rate than that of high-priced ones in the area, due to the shortage of “jeonse” homes as well as the government’s real estate measures to curb speculative buying in overheated zones, especially Seoul’s Gangnam, Park added. 

Jeonse is a housing lease system unique to Korea whereby tenants pay a lump-sum deposit instead of monthly rent on a two-year contract. 

After a set of tenant protection laws took effect in July last year, enabling tenants to unilaterally prolong their jeonse contract periods by another two years and impose a cap on deposit hikes, many landlords withdrew their jeonse offers from the property market, raising jeonse home prices. 

By Choi Jae-hee (cjh@heraldcorp.com)

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