As the gap widens between the Seoul metropolitan area and the provinces in the real estate market, this month's nationwide outlook for the dwellings business eased slightly.
The Korea Housing Institute said on the 16th that a survey of dwelling business operators found the nationwide dwellings business outlook index for June came in at 77.1, down 0.5 points from the previous month.
The Seoul metropolitan area, including Seoul, was surveyed at 78.1, up 5.2 points from the previous month, reviving expectations. By contrast, non-capital regions including the provinces stood at 76.9, down 1.7 points, showing a stark contrast.
The overall rise in the metropolitan area is closely tied to home price movements. As apartment starts have recently decreased and concerns persist that new homes could become scarce, both dwelling sale prices and jeonse rents have been rising since May and even transactions have increased, bolstering belief that the market will recover, according to the Korea Housing Institute.
Specifically, Seoul rose 15.0 points in a month to 97.5. Gyeonggi Province also climbed 7.9 points to 76.3. In contrast, Incheon, also in the metropolitan area, fell out of step alone by dropping 7.2 points, as disparities in subscription demand vary widely by neighborhood and anxiety over failed offerings persists.
The Korea Housing Institute said, "In Seoul's case, along with dwelling price gains, expectations that investment revenue earned recently in the stock market could flow back into real estate appear to have positively influenced the construction industry's view."
Meanwhile, sentiment in the provinces is worsening. The non-capital June outlook retreated to 76.9, with major provincial cities at 80.4, down 2.4 points, and the remaining provincial regions at 74.3, down 1.1 points. Only Ulsan, which has its own catalysts, made a surprise rebound of 8.2 points, while most hub cities such as Sejong, Daegu, Daejeon, Gwangju and Busan were uniformly weak. Among provincial regions, only a few areas such as South Chungcheong and Jeju rose slightly, while Gangwon Province plunged 10.8 points and South Gyeongsang and North Jeolla also declined.
The reason the provincial dwellings market has frozen is that home prices keep falling and unsold apartments remain piled up. In addition, due to the government's preferential policy for single-home owners, many people who had planned to buy in the provinces shifted their eyes to the metropolitan area, siphoning off demand. Local small and midsize builders are facing cash piles running dry and even falling credit ratings, creating a sense of default risk, effectively leaving them unable to even contemplate starting new projects.
Bringing in new funds has also become much tougher. This month's nationwide financing index came to 69.6, down 3.4 points from the previous month. Concerns that market interest rates could rise have spread, and as builders' creditworthiness has deteriorated, getting loans from financial institutions has become like plucking a star from the sky. In particular, as financial company funds have recently flocked to the stock market, both lending thresholds and rates in the banking sector have risen, and as a result, the heavier interest burden on construction firms has dampened sentiment, the explanation goes.
By contrast, the materials supply index needed for construction rose 10.6 points from the previous month to 77.7. But it is hard to say this eased the woes at construction sites. Because last month's index was so poor, the jump looks more like an "optical illusion" driven by base effects, and as geopolitical risks in the Middle East only slightly eased, concerns over raw material supplies have only somewhat subsided.
The Korea Housing Institute said, "Global oil prices remain unstable and could swing again at any time, and with the won-dollar exchange rate up sharply, the burden of prices for imported materials remains," adding, "This rise in the index is judged to be a temporary rebound from last month's slump rather than an actual decrease in construction costs."