Seoul's Rental Crisis Fuels Home Buying Frenzy in Vicious Cycle

Seoul's rental market is in a deepening crisis, pushing young couples to consider buying homes despite rising prices. Many are struggling to find any available apartments, and those that are available are prohibitively expensive. One young couple, who wished to remain anonymous, described their daily calls to real estate agents in a desperate search for a new home after their landlord refused to renew their lease. They are now considering taking out larger loans to buy property in the outskirts of Seoul or in the neighboring Gyeonggi Province, even with rising interest rates.

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If I can't find a place to rent, I'm thinking about taking out more loans to buy a house in the outskirts of Seoul or in Gyeonggi Province right now.

This "forced buying" trend is a direct consequence of the severe shortage of rental properties in Seoul. As home prices climb and rental listings dwindle, young people are feeling immense pressure to secure housing. Experts point to a vicious cycle where increased demand for rentals, coupled with a shrinking supply, exacerbates the problem. When rental demand and supply are balanced, buying a home for self-occupation can reduce rental demand. However, when overall supply is critically low, this dynamic intensifies, leading to a higher demand-to-supply ratio in the rental market.

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Market stability and housing stability are closely linked, and especially in areas outside of Gangnam, the market is immediately and sensitively intertwined with demand for self-occupation. It's an interaction where instability in the rental market directly stimulates buying sentiment.

The rental market's strain is evident in the soaring rental prices and a significant increase in the rental supply index, which measures demand versus availability. This index has reached its highest point in five and a half years, surpassing levels seen during the 2021 rental crisis triggered by new housing laws. The cumulative increase in Seoul apartment rental prices this year has already exceeded five times last year's rate. The shift from long-term rentals to monthly rent payments, along with those unable to find traditional rentals, is further tightening the monthly rent market, pushing its supply index to a near three-year high.

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In areas on the outskirts of Seoul, the difference between buying and rental prices is not large, so the more unstable rental prices become, the faster the transition to buying occurs.

Analysts believe the surge in young people transitioning from renters to buyers is a key driver of this escalating cycle. This is particularly pronounced in Seoul's less affluent areas, where the price gap between renting and buying is smaller. In these regions, a volatile rental market directly fuels buying sentiment. The government's attempts to alleviate the crisis, such as a recent housing supply plan, have faced local opposition and are not expected to yield immediate results. Without significant new measures, experts warn that this trend of young buyers entering the market is likely to continue, making it difficult to curb the current housing market boom.

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With no new housing supply and historically high liquidity, the rental market is unlikely to stabilize, and the trend of young buyers is likely to continue. Without groundbreaking measures, it will be difficult to stop the bullish market.