Overview of Risk Factors and Potential Changes in Deposit-based Lease Market
Deposit-based rent has been on a steady rise with potential buyers turning to a wait-and-see position and worsening supply and demand balance.
● Recent rent hike can be attributable to potential buyers deciding to wait and see amid sales market slowdown and concerns for more price drop, and growing demand affected by changes in how people perceive house as asset.- In particular, the soaring rent was wrought by supply and demand imbalance, as the available quantity fell significantly in certain areas; there was only a small share of small and medium-sized houses out of newly built ones; and more owners were shifting to monthly rent from deposit-based lease due to low interest rate.
● With more and more people perceiving the government measure recently announced to stabilize the market as insufficient, there is growing interest in future trend of deposit-based rent and prospect of sales market recovery.
The upward trend is likely to continue with remaining risk factors in the housing market and decrease in new housing units.
● While demand for deposit-based lease is expected to go up due to lack of momentum for growth in the market and supply of long-term public housing, there are risk factors in terms of supply and demand including weak buying sentiment affected by growing household debts and rising interest rates.
● The rent is likely to remain high, considering that the available quantity of new houses is forecast to plunge and the moving season is coming up. - Another risk factor is that new housing supply is expected to continue to go down for the next 2 to 3 years due to depressed business conditions in the real estate market since the financial crisis.
● Meanwhile, the soaring rent may lead to recovery of the real estate sales market, and there may be regional disparity depending on the ratio of deposit-based rent to sales price and the level of housing price compared with income level. - As for regional areas, demand for deposit-based lease is likely to shift to sales because of a high ratio of deposit-based rent to sales price and dramatic fall in new house supply, but when it comes to Seoul and surrounding metropolitan areas, high price compared with income level may hinder the demand from turning to actual sales.
Strategies should be put in place to respond to changing trends in the mid to long-term rental market.
● There is a high possibility that housing prices will be stabilized at a low level and the market will follow a new trend with demographic change and retirement of the baby boomer generation, as well as change in household asset portfolio currently concentrated on real estate. - Rental housing is expected to be in an increasingly high demand due to change in mid to long-term housing demand, but gradually stabilizing housing prices may weaken the deposit-based lease market and boost the monthly rental market instead.
● With rental market expected to go diversified, it is recommended to come up with measures to stabilize the mid to long-term rental market and develop a variety of housing finance products such as a loan for lease deposit and a fixed-rate long-term housing loan.