Bank of Korea's key rate 'cut' forecast...What is the impact of the real estate market?

■ Host: Anchor Park Seok-won
■ Starring: Park Won-gap, KB Kookmin Bank Senior Specialist for Real Estate

* The text below may differ from the actual broadcast content, so please check the broadcast for more accurate information. Please specify [YTN Newswide] when quoting.

[Anchor]
The Bank of Korea's Monetary Policy Committee will decide the base rate the day after tomorrow. Amid the weight of the interest rate cut, attention is being paid to how it will affect the real estate market. Let's take a look at the contents related to KB Kookmin Bank's senior real estate expert Park Won-gap. Please come in. The Monetary Policy Committee decides the base rate the day after tomorrow, and the outlook seems to be dominant toward the cut. But I'm paying attention to how much I'll get off, so what do you think?

[Park Won-gap]
Now, there is a recent survey of bond experts. The Financial Investment Association has done a survey and will lower the benchmark interest rate this October. About 64% of the people expected it. It's not very high. In general, you're expecting to lower it by 0.25 percentage points. That's why prices are important now, and consumer prices in September are now 1.6%. You used to say 3%. Compared to then, it is a stable structure, so I think there is a high possibility of lowering it, but if you can't lower it this time, the Monetary Policy Committee will be held again on the 28th of next month. There is no December. So in terms of probability, I think we're looking at it now, whether it's likely that we'll at least cut interest rates this time or in November.

[Anchor]
In the case of the United States, it was lowered by 0.5 percentage points. Then, if we cut interest rates this time, how much do you expect to cut?

[Park Won-gap]
Right now, we're at 3.5% per annum. Then, wouldn't it be a little difficult to cut it dramatically? That's the main reason. So I think it's about 3.25%, down by 0.25 percentage points. Depending on some people next year, there are prospects that they will lower it once or twice.

[Anchor]
How would it affect the housing market if we cut interest rates, thinking that demand for loans might increase a little anyway, and then housing prices could be affected?

[Park Won-gap]
There's a variable and another axis that we're going to cut interest rates. It's loan regulation. So maybe in October, there may be a bit of a seesaw game between interest rate cuts and loan regulations. Basically, interest rates are the gravity of all asset markets. In the end, interest rates determine prices, you can see it like this, and that's why when the tide comes, small or large boats float.

Interest rates become so important, but the problem is that one axis now introduces the second stage of stress DSR from September. Then cutting interest rates means increasing liquidity on the market. It's putting in more money, and one side raises the threshold so that money doesn't go in. Then, the outlook will vary depending on which of these will be increased. In conclusion, there are many such papers that loan regulations have a much stronger impact on key areas of apartments in Seoul. Why? Because the house price is high. So, I think housing prices will not fall right away as transactions in Seoul, Gyeonggi, and Incheon will probably decrease.

On a weekly basis, the rate of change in apartment prices is about 0.1% based on the Korea Real Estate Agency. Then, if this turns negative, I think there is a possibility that it will weaken as early as November or as late as December. However, because this lowers interest rates, interest rates in villas, shopping malls, and land do not fall significantly as in the past. Since it is slightly lowered, it is expected to have a somewhat breathtaking effect.

[Anchor]
However, analysts say that the rise in apartment prices in Seoul has slowed down for a while, and the surge has stopped a bit, so should I say that it has declined slightly?

[Park Won-gap]
I think we'll have to wait and see. So, I'm sure you've heard a lot about the transaction volume taking on the precedence of the market, but in terms of apartments in Seoul, July had the highest transaction volume. But in August, it gets cut off completely. So that's only about 68% of July. Then what do you mean by a deal? The people who buy the house are hesitant. You can see the transaction volume in statistics as we are entering a wait-and-see stance, so I think July is the peak in terms of transaction volume. But it's a little different from last year and this year.

There are also talks about whether it was last year's again, but the aspect of loan regulation is similar. Last year, at the end of September, the sale of the general type of special housing loan was stopped, and the 50-year loan was also suspended. It's similar to the second level of stress DSR. However, if you look at Seoul at that time, the house price has been slightly adjusted since October. So last year, it went up 10% on an annual basis, in terms of actual transaction price. But it went up 13% until September, and then it was adjusted by 3% in three months. However, there are many reasons for this, and I think the financial market environment should also be considered, but the U.S. 10-year Treasury bond rate exceeded 5% during the day in October last year. The bond market had a little bit of a seizure. But how is it now? Isn't the financial market rather slashing interest rates in a way that is pouring liquidity into it? There was also talk that the U.S. would cut it again. So the overall volume decreases and the market slows down slightly, but we see the possibility of a modest adjustment rather than a sharp adjustment like last year.

[Anchor]
Commissioner, the real estate market has previously compared it to interest rate cuts, loan regulations, and seesaw games. If you cut interest rates, won't apartment prices in Seoul be affected more by loan regulations? Then, even if the base rate is cut in the future, do you think apartment prices in Seoul should continue to take a wait-and-see stance?

[Park Won-gap]
I think there's a good chance that it's going to happen.

[Anchor]
Key areas like Mayongseong must be more like that, right?

[Park Won-gap]
Isn't the house price expensive? So, if you look at the current trend, there is a view that the outer part of Seoul is adjusted first rather than Ma-yong or Gangnam. It's a common phenomenon during a recession. When you look at the lake, you usually lose the water from the edge. It has similar characteristics to that. Then, doesn't Ma-yong or Gangnam fall off because rich people buy it? It's hard to see it like this. It's hard to see like this, but it's more affected by loan regulations. In fact, one of the reasons why housing prices have risen so much this year was that the ban on loans for apartments exceeding 1.5 billion won was lifted. As a result, it's mainly because there's a lot of demand for switching between higher-level positions, but if you regulate loans, demand will inevitably slow down a little, I think it's right to see it like this.

[Anchor]
However, in the case of provinces, the situation is more serious, but there are many unsold houses. So there are even talks about giving luxury goods if you buy a house, but isn't the polarization of real estate getting worse?

[Park Won-gap]
You can think of it as a general trend. But it depends on whether we will look a little far or in the short term. I told you earlier that loan regulations are very scary, but housing prices are cheap in the provinces. Then I don't pay a lot of loans. Then, you can react more sensitively to interest rate cuts. Isn't it so? But isn't the overall situation in the province now bad? 80% of all unsold properties are in the provinces, and the young population continues to leave for Gyeonggi-do and Seoul. Given this, the fundamentals of the housing market themselves are weak. However, if the interest rate cut is a little sensitive, I think it will help you strengthen the floor rather than escape the floor a little bit. Based on the actual transaction price, the province has been rising for two consecutive months. So if you look at the July data, it went up 0.2% compared to the previous month. So, although it is unlikely that it will suddenly rise, if you look at it a little positively, there is a situation where the worst is getting out a little. However, it is expected that the speed of recovery will be a little slow, unlike in the past.

[Anchor]
Another thing that stands out is last month's statistics, and this part stands out because monthly rent prices have risen much steeper than the steep rise in house prices. Why is that?

[Park Won-gap]
I can tell you two things about that, but you were talking about the monthly rent of the apartment, right? That means the demand has increased. That the price will go up. Then you have to consider the aftermath of the villa lease fraud. So the fear of losing my entire fortune if I go into the villa. As the aspect of moving from a kind of survival instinct to an apartment appears, there seems to be an aspect that naturally increases prices as demand collapses. And if the jeonse price goes up, the monthly rent price will eventually go up. Korea has a rare lease on a deposit basis system around the world. So first, I calculate the deposit for the lease on a deposit basis. and then pay by monthly rent. It's called the monthly rent conversion rate, and if the monthly rent conversion rate rises, the monthly rent will rise.

So, interest rates have risen in the meantime, so of course, monthly rent prices go up accordingly. According to Kookmin Bank, the conversion rate of jeonse to monthly rent in Seoul, or the rate of return from jeonse to monthly rent, is about 4%, but this was 3.2% two years ago. Of course, it costs more when switching to monthly rent compared to then, you can see it like this. So, in my opinion, monthly rent is a structure that interlocks with each other and moves. Then, based on the current apartment lease, the actual transaction price has surpassed the high point. So you can see it in the aftermath. Will the rent be reduced? You don't have to be in such a hurry right now. Rather, you can stay on a lease instead of going to the sale now, if the house price is adjusted. So in my opinion, there is no possibility that monthly rent prices will fall in such a short period of time.

[Anchor]
But the problem is that if the monthly rent continues to rise like this, of course, you will find a lease on a deposit basis, and then the lease on a deposit basis will rise again, and then the sale price will also be affected, right?

[Park Won-gap]
I think it's a little too early to see it that way. Because in the end, monthly rent can stimulate lease on a deposit basis and lease on a deposit basis can stimulate sales, but you can see it by looking at the lease on a deposit basis price ratio now. So, based on Kookmin Bank, the ratio of apartment rental prices in Seoul in September is only about 54%. Back in 2016, when it was the highest, it reached 75%. So I'm expecting that the jeonse market will become unstable, and eventually, the jeonse price rate should exceed 60% in order to push up the sale.

[Anchor]
Another statistic stands out, and statistics show that 40,000 houses have been bought by 1,000 multi-homeowners over the past five years. So people with homes can't buy more, people without homes can't buy more, and this polarization seems to be getting worse, so why is this happening?

[Park Won-gap]
I think there are some deregulation as well. But it's almost like you're buying a house like a collection. When looking at home ownership in Korea, 85% of the total are people who own one. It's a very unique case. So 45 people bought 100 units and 158 people bought 50 units. I don't think this is a normal pattern. Perhaps multi-homeowners should also live with expectations that housing prices will rise. These statistics are from 2019 to the end of last year. The peak is between 2019 and 2021. I think I'm focused on this. In a capitalist society, buying a house in a democratic society doesn't matter. However, if you disrupt the market, you must be sanctioned. When it comes to where the money came from, if the expedient gift or acquisition is unclear, of course, it is a reason to investigate and clarify it.

[Anchor]
It's hard for ordinary people to get their own homes, so they turn their eyes to subscriptions a lot. However, even if a four-person household with 10 years of homelessness and two children has been subscribed to the subscription account for more than 15 years, it does not meet the acceptance line for winning the subscription.

[Park Won-gap]
These days, it has become very difficult to get my own house through winning. I don't think there's a lot of supplies either. Because of this, I'm nervous. Thinking about the fact that the sale price continues to rise and there is no guarantee that it will be supplied, I think people who have had subscription accounts for a long time are anxious. So, first of all, don't ask. It's appearing like this right now, but if you look at it in person, there's a family of four. When you get all the perfect scores, you get 68 out of 84 points. If you look at the winner, you'll get more than 70 points. It's also expressed as a natural monument. Anyway, now winning points is like picking stars in the sky, so how are you going to solve this problem? In the end, psychologically, it is necessary to stabilize the homeless first. If I can get a cheap sale later, I won't get it in such a hurry. The other one is the volume. In the end, I'm thinking about whether we should continue to secure supplies.

[Anchor]
If it's hard to subscribe or borrow, there's no choice but to say, "What should I do to buy my own house?" As a result, I think there will be complaints that only those who hold cash will receive benefits.

[Park Won-gap]
That's right. There are a lot of problems right now. In fact, this is a matter of distribution of subscriptions. So, if you listen to people in their 40s and 50s these days, why are they all assigned to the younger generation and why are we being treated lightly? I've been waiting for nearly 20 years as a homeless man, and there are such complaints, and the sale price is too high for the younger generation. It's not easy to talk about how many apartments in Seoul will be sold even if you collect them for the rest of your life. But the most important thing is to increase the volume and lower the sale price for now. In particular, the sale price is almost over the top, but the sale price has decreased slightly recently. Even so, I still can't dare to buy it now, so I'm thinking about whether I can buy it at a low price or buy raw materials jointly to lower the cost, so I can get it sold and buy my own house.

[Anchor]
Lastly, let's look at the reconstruction of the first new city. It is said that competition for the leading district to quickly rebuild the first new city has heated up, and the average competition ratio is 6:1. House prices also seem to be fluctuating a little.

[Park Won-gap]
I'm sure there's expectation. That's why I'm talking about the first Shindo district of the first new city. You mentioned about 5.9 times the volume, almost 6:1. Bundang was a bit high, and they say 7.4 times. But I think this will be selected from November. The most important thing is the resident consent rate, and we judge it by this. It's probably going to be fast track. I think we'll move on quickly. But the key is that construction costs have gone up. Then, the rate of return could drop a little. In particular, the reconstruction levy system still applies. Then, the reconstruction development project is a residential environment project based on market logic. Then, residents will actively participate only when it is profitable, but they will probably proceed to some extent. However, at the end of the year, it may vary a little depending on how much the reconstruction charge will be eased to the expected level.

[Anchor]
I see. Let's stop here. So far, we have been with Park Won-gap, senior real estate expert at KB Kookmin Bank. Thank you.