50% More Income Needed to Buy Apartment in Seoul

To buy an apartment in Seoul requires an annual income of over 70 million won in order for the purchaser to be not burdened by excessive loans a recent report showed, meaning a typical middle class family needs to make 50 percent more than their current income.

According to the Korea Housing Finance Corporation, the housing affordability index in Seoul, or the ratio of income needed to shoulder a loan to the median income, was recorded at 151.4 as of March, the highest level nationwide. This means a household with median income, wishing to buy a median price apartment by depending on a mortgage for half of the apartment price, needs an income 1.5 times bigger than what they make now. Otherwise, it would be impossible to pay back the mortgage.

When considering that the annual household income for Seoulites averaged 47 million won, they actually need to earn 71 million won to buy an average priced apartment in Seoul, which costs 390 million won.

The interest rate for mortgages recorded 6.7 percent in March, and so a median-income household would need to spend 36.8 percent of income paying back the loan if they bought an apartment.

While the index hovered above 100 in Seoul and Gyeonggi Province, other parts of the country saw the index drop below 100. In Daejeon, for example, the index recorded 52, meaning only 52 percent of the median income would be needed to buy an apartment on a loan without feeling burdened.

In the case of big apartments, 135 square meters or bigger, the index recorded 307.5, which means buying the home on loans would be impossible unless income doubled.

It was usual for Korean households to buy houses while shouldering over a 100 million won mortgage, as the rising apartment prices were enough to offset the interest rate burden. The recent soaring of interest rates and the fall of housing prices, however, are driving some homeowners to regret buying.

Kookmin Bank, for example, raised mortgage rates by 0.05 percentage points this week from a week ago. Shinhan and Woori also pulled up the rate by 0.06 percentage points.

As mortgage rates have been on the rise, some apartments, especially big, expensive ones, are seeing prices fall. Burdened by the interest, homeowners put the apartments on sale, but it is difficult to find a buyer as the former President Roh Moo-hyun administration put restrictions on loans, such as the loan-to-value ratio or debt-to-income ratio, to curb speculation on real estate.