The price gap between apartments in the Seoul metropolitan area and the provinces has widened to its largest in about 17 years.
According to the Bank of Korea's Economic Statistics System on the 9th, the apartment sales actual transaction price index in Jul. showed 152.0 and 105.2 for the Seoul metropolitan area and the provinces, respectively.
The apartment sales actual transaction price index is calculated with Nov. 2017 as the base point (100). In Jul., the Seoul metropolitan area's index-to-provinces ratio of 1.4449 was the highest since Aug. 2008 (1.4547. Simply put, the apartment price gap between the metropolitan area and the provinces is the largest in 17 years.
The apartment price gap between the metropolitan area and the provinces widened until 2009, then gradually narrowed as the housing market weakened after the global financial crisis. It began to widen again around 2015, paused briefly during the COVID-19 recovery phase, and has grown again since 2023.
Recently, while apartment prices have been surging along the Han River belt in Seoul, the prices of dwellings in the provinces have been falling, deepening polarization and widening the price gap between apartments in the metropolitan area and the provinces.
This polarization in dwelling prices is analyzed as the result of structural problems in our economy, such as population concentration in the metropolitan area, intertwined with past policies to boost the housing market. There is also an interpretation that regulations on owners of multiple dwellings have lifted only metropolitan dwelling prices, exacerbating the polarization of the dwelling market between regions. The view is that when regulations on multiple dwelling owners are uniformly tightened, people concentrate on "one smart unit" to avoid the disadvantages of holding several dwellings.
According to the paper "Analysis of regional polarization in the housing market" presented by the Korean Economic Association, an analysis of the apartment price change rate (based on the KB sales price index) during the period of strengthened government regulations on multiple dwelling owners, using dummy variable estimation and other methods, showed the metropolitan area rose 0.912% while other provinces fell 0.075%.
Another cited reason for the home price gap between the metropolitan area and the provinces is that when interest rates rise and the opportunity cost of purchasing dwellings increases, or when the economy slumps, the incentive to keep provincial dwellings disappears, causing provincial dwelling prices to decline.
In the paper, Lee Geun-young, an emeritus professor at Sungkyunkwan University, said, "To ease the polarization in metropolitan and provincial dwelling prices amid strong preferences for 'one smart unit' as now, deregulating multiple dwelling owners in the provinces along with additional transfer of public institutions and active incentives to attract overseas-expanding corporations or metropolitan corporations to the provinces are needed."