High-end apartment sales nixed due to financing limitations
In the Seoul metropolitan area, a series of strict loan regulations, notably the June 27 loan cap, have had a significant impact on the real estate market, particularly in the luxury apartment sector. This policy, introduced by President Lee Jae Myung, was designed to curb excessive real estate speculation and debt-fueled purchases. However, it has had unintended consequences, particularly for high-priced apartments.
The primary driver of the surge in contract cancellations for luxury apartments (those priced above 1 billion KRW) is tighter access to mortgage financing. Many buyers, especially those lacking substantial equity, are now unable to secure the necessary loans to complete transactions. This financial hurdle has led to a marked increase in contract cancellations, even at the cost of forfeiting sizable down payments.
The stricter lending environment has coincided with a broader downturn in the housing market, characterised by falling prices, low transaction volumes, and waning buyer confidence. Buyers of luxury properties are particularly sensitive to market downturns because the potential loss from falling values is much greater on high-priced assets.
The cancellation rate is especially pronounced in Seoul’s "3 Gangnam districts" (Gangnam, Seocho, and Songpa), where high-priced apartments are concentrated. For instance, in Seocho-gu, the cancellation rate rose sharply, reflecting both the area’s luxury market dominance and its buyers’ heightened exposure to financing constraints.
Since the June 27 loan cap, the proportion of canceled contracts for apartments priced above 1 billion KRW rose from 26.9% to about 35% of all cancellations in the Seoul metropolitan area—an increase of over 8 percentage points. In contrast, cancellations for lower-priced apartments (under 500 million KRW) decreased, indicating a market shift rather than a blanket downturn.
The real estate brokerage industry is also feeling the strain, with hundreds of offices closing monthly as transaction volumes plummet and market activity grinds to a near halt. New apartment supply has dropped sharply, especially among mid-sized developers, and there is little optimism for a near-term recovery unless transaction volumes rebound or new supply is announced.
Even high-profile sales are affected. For example, actor Kim Soo Hyun’s sale of a luxury Galleria Fore apartment in Seoul for 8 billion KRW proceeded, but only because a buyer was secured well in advance of the new regulations; such large, planned transactions are likely to become rarer as financing options shrink for affluent buyers.
The following table summarises the cancellation rates before and after the loan cap:
| Aspect | Before Loan Cap | After Loan Cap (Post June 27) | |---------------------------------|------------------------|---------------------------------------| | Cancellation rate for >1B KRW | 26.9% | ~35% | | Cancellation rate for <500M KRW | 32.2% | 25.1% |
The policy’s impact is likely to persist until there is a meaningful easing of financing conditions or a rebound in market confidence. The recent uptick in cancellations may reflect growing buyer caution toward purchasing pricey apartments.
Investors in high-priced real estate properties, particularly in luxury apartments in the Seoul metropolitan area, are finding it challenging to secure financing due to stricter loan regulations. As a result, there has been a significant increase in contract cancellations for these high-priced apartments, with the cancellation rate for apartments priced above 1 billion KRW rising from 26.9% to about 35%. Furthermore, the real estate industry is suffering as transaction volumes plummet and hundreds of offices are closing monthly.
