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Gangnam Style is no longer popular as rising rates affect Korea’s high-end real estate sales

Real estate in Gangnam – a trio of distinctive districts in the South Korean capital Seoul – is starting to deviate as the central bank’s year-long tightening cycle weighs on luxury. real estate market.

Apartment prices in all Gangnam districts have fallen for the fourth consecutive week, data from the Korea Real Estate Commission program, representing the first monthly decline since the Bank of Korea started raising its key interest rate last August.

The blow to Gangnam signaled collide Policy tightening is now reaching the upper classes of Korea’s 51 million people.

While Governor Rhee Chang-yong told Bloomberg that housing adjustment is inevitable and has an element to look forward to, concerns about the property market and household debt are among the factors. prompting the BOK to return to smaller rate hikes.

Apartments in Gangnam make up the majority of homes in Seoul classified as Knight Frank Prime Global City Table of contentshas slowed after rising last year at its fastest pace since 2008.

The cooling momentum of the world’s 5% of the world’s most expensive and desirable homes coincides with the start of a Federal Reserve interest rate hike and growing concerns about a global recession.

Kate Everett-Allen, head of international population research at Knight Frank, said: “My expectation is that we will see index growth slow down further in the third quarter as the difficulties rise. economic hardship increases.

“But we expect our fundamentals to outperform our mainstream housing market indexes, which are more reliant on finance and therefore more risky to the rate get a raise.”

With Gangnam as its hub, Seoul’s top real estate was the hottest in Asia over the past year, up 20.9% and outstripping both Tokyo and Taipei, according to Knight Frank.

Apartments tracked by Knight Frank include Raemian Dogok Countycost up to 3.8 billion won ($2.8 million) each, and Acro River Park, costing up to 22 billion won. The 3rd Samsung Tower Palace was traded for up to 7.5 billion won, according to the Korean portal Naver.

South Korean singer and producer Psy performs his biggest hit song, Gangnam Style, during a concert at an outdoor venue on the campus of Korea University in Seoul on May 27, 2022 .

ANTHONY WALLACE — AFP via Getty Images

Made famous internationally by Psy’s”Gangnam stylemusic videos, the districts symbolize the wealth, status and luxury of the Korean people. A cluster of prestigious high schools and a network of influential residents make the neighborhood a mecca for Korea’s elite.

Compared to a year earlier, house prices in Gangnam still rose in July, up about 5% – the slowest pace since spring 2021. It remains to be seen whether the downturn lasts in the districts. .

However, when Gangnam collapsed, it tended to fall more sharply than many other regions. During the 2012-2014 recession, Gangnam declined more than most of the rest of the country. Similar volatility was noted during the 2008-09 global financial crisis.

Greater pressure is also likely, with central banks including Fed Chairman Jerome Powell warning at the Jackson Hole meeting last month that borrowing costs are even higher and will continue to rise. in a period of time.

Gangnam, once a rugged farmland, is now home to 2 million people, including high-ranking officials like President Yoon Suk Yeol, K-pop stars and a host of business leaders. and technology.

Not everyone in the districts is rich and famous. When the heaviest rain in 80 years hit Seoul last month, at least four Gangnam residents drowned in basement houses, a symbol of Korea’s deep wealth inequality in the film. won an Oscar”Parasites. “

Torrential rains also revealed unexpected gaps in some luxury apartments, engulfing Lamborghinis, Porsches and hundreds of other luxury cars parked beneath them.

As a rule, Koreans prefer apartments to independent houses, in contrast to many Western countries. Cookie-cut buildings take up less space than in a densely populated country and are seen as safer against theft, cheaper to manage, and easier to deal with because they are built to similar specifications .

The initial adjustment in luxury homes is also not limited to Gangnam. According to data released last week, 50 luxury homes selected by Kookmin Bank across the country fell for two consecutive months.

The cooling off is a clear sign that central bank policy tightening is shifting to assets.

The BOK started its rate hike cycle earlier than most advanced economies because of growing concerns about financial imbalances. South Korea’s growing wealth divide, amplified by soaring house prices, drives the public Anger and spurred an election wave that helped Yoon oust Moon Jae-in in an election earlier this year.

Now, as house prices begin to fall, the landscape is changing. But potential buyers don’t rush to brokers to try to secure a property.

Rising BOK rates and expectations of further tightening, coupled with low trading volume, are fueling expectations that the recession will be prolonged.

“With households starting a rate cut cycle, we expect housing prices to continue to come under pressure in the coming years,” said Park Jeong Woo, an economist at Nomura Holdings Inc..

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