President Lee Jae Myung's 'Gangnam decline' assessment challenged by experts as an 'illusion caused by a transaction cliff'

[Financial News] Real estate experts viewed President Lee Jae Myung's press conference on the 18th as an occasion to reaffirm the government's existing policy direction. However, they said the government and the market appeared to have differing views on the current market and the results of policies implemented so far.
Concerns were raised over the president's description of falling home prices in the Gangnam area and rising prices in areas on the outskirts of Seoul as a "flattening" process. While a shift in demand toward mid- and lower-priced areas could narrow price gaps between regions, critics said it could also weaken the housing ladder by driving up the prices of homes accessible to people without homes and genuine homebuyers.
According to the real estate industry on the 20th, experts said regulations had played a major role in the decline in prices in the Gangnam area by creating a transaction cliff. They also warned that rising prices in outlying areas could narrow housing options for the middle class and ordinary people. They added that it remains to be seen whether a policy combining expanded financing for housing supply with lending restrictions on home-buying demand will produce the intended effects in the market.
At the press conference, President Lee identified concentration in the Capital Metropolitan Area and the myth that real estate prices never fall as the fundamental causes of rising home prices. Regarding the recent market, he said, "Declines have begun and are spreading in areas including Gangnam, while the outskirts are rising." He added, "It seems a flattening process is underway in a structure where Gangnam was at the top and other areas were lower."
Experts said it was necessary to first determine whether the decline in the Gangnam area reflected prices established through a sufficient number of transactions. They explained that, as transaction volumes plunge in areas subject to concentrated lending and transaction restrictions, a few declining deals could appear to represent the trend of the entire market.
Seo Jin-hyung, a professor in the Department of Real Estate Law at Kwangwoon University (KWU), said, "The decline in the Gangnam 3 Districts (Gangnam-gu, Seocho-gu, and Songpa-gu) may be a statistical illusion caused by a transaction cliff." He added, "When transactions are heavily restricted, it is a natural result that prices appear to have fallen."
Professor Seo said the flattening could ultimately increase the burden on genuine homebuyers. "If home prices rise in areas outside Gangnam, the number of places where ordinary people can move will decline," he said. "It is difficult to view this as positive flattening simply because the price gap between regions has narrowed."
Some experts also said the effectiveness of the plan to expand financial support for housing supply while maintaining lending restrictions on home-buying demand must be carefully assessed.
President Lee explained at the press conference, "We are expanding financing as much as possible in areas that can increase housing supply." He added, "On the demand side, we are pursuing a targeted policy by maintaining the existing lending measures."
Lee Eun-hyung, a research fellow at the Korea Research Institute for Construction Policy (RICON), said, "The policy means that support for supply will be expanded while the demand-suppression policy will be maintained, continuing the direction pursued so far." She added, "However, the government and the market appear to have somewhat differing views on the results of the policies implemented to date."
Seoul Mayor Oh Se-hoon immediately rebutted President Lee's remarks about the decline in housing permits and construction starts since 2022.
In a statement, Mayor Oh said, "Before housing can reach the construction-start stage, there must be a process of sowing and nurturing." He argued, "It was former Mayor Park Won-soon who eliminated that entire process by canceling redevelopment and reconstruction projects across Seoul." He continued, "If you had properly examined the progress report on redevelopment and reconstruction submitted by the Seoul Metropolitan Government, it would have been difficult for you to make remarks like those today."
[email protected] Choi A-young Reporter