Abstract
Conditions in South Korea’s real estate markets are, and are likely to
remain, fairly depressed. The
country’s export sector has been fully
exposed to the downturn in global trade. Domestically, a surge in
public
sector-led civil engineering works and construction is preventing a slump in
the building industry
from turning into a complete rout. Official figures
reveal the value of construction completed in Q109
was 5.2% higher than in
the previous corresponding period. Civil engineering works completed were
27.7% higher than in Q108. However, building completions were 6.6% lower.
Overall, new construction
orders were 16.5% lower than they were a year
previously. Public-sector construction orders rose 22% in
Q109 –
relative to those of the previous corresponding period – while private
sector orders dropped
38.4%.
Eventually, the lack of supply of new
buildings will result in a decisive firming in rents and prices. For
the
time being, though, it is difficult to see why rents and prices will not
remain subdued for the next year
or so. Land prices across South Korea as
a whole (but not yet in Seoul itself) have stabilised: there is the
possibility of a recovery later this year.
Going forward, a key issue will
be the availability of finance. The South Korean banking sector is unusual
in that, over the course of 2008, the loan/deposit ratio rose to well over
100% and was, for much of the
year, the highest of any of the banking
systems in the major Asian economies. The implication is that a
tightening
of credit conditions is likely to be a key feature of 2009 – regardless
of what may be the
official policies to boost the economy.
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