ⓒ KBS News

The South Korean government has unveiled a set of real estate regulations to better cope with rising housing prices. The new rules came a year after the government announced tough measures known as the August 2 real estate policy to curb speculative demand in Seoul and its surrounding areas. We’ll have to wait and see if the latest anti-speculation package will cool down the high housing prices in Seoul and stabilize the market. Here is Park Won-gap, chief researcher for real estate at KB Kookmin Bank, to explain the backdrop for the new regulations. 

The government came up with the latest measures to deal with the recent surge in housing prices in some districts in Seoul. One of the factors behind the unstable housing prices is discord between the central and local governments in their housing policy, as seen in Seoul City’s recent postponement of its large-scale redevelopment plan for the Yongsan and Yeouido areas. Close cooperation between the central and local governments is essential, as far as the housing policy is concerned. Another reason for the soaring housing prices, despite the economic slowdown, is a large amount of money floating in the market. Due to an abundance of liquid assets in the market, many people are eager to buy homes as a means of protecting their assets, believing that real estate will counteract possibly rising inflation. 

According to the Korea Appraisal Board, a government-run real estate information provider, apartment prices in Seoul has risen 6.32 percent for 12 months since the announcement of the August 2 policy last year. The percentage is higher than the annual growth rate of 4.78 percent before the policy was revealed. To add fuel to the fire, Seoul City announced its master plan to develop the Yongsan and Yeouido areas in July this year, prompting more people to buy houses in those areas in anticipation of housing prices increases. As the real estate market showed signs of overheating, the government announced additional measures on August 27. 

The government has designated four more districts in Seoul—Jongno, Jung, Dongdaemun and Dongjak—as “anti-speculation zones,” raising the number of such areas to 15 in the capital. Also, the government decided to develop about 30 regions in and around Seoul to provide some 300-thousand homes by the year 2022. The Ministry of Land, Transport and Infrastructure says that housing supply is adequate for now but it will still prepare for potential rise in demand. The government’s real estate measures have been mostly about controlling demand. But now, it says that it will also expand supply at the same time. 

In addition to more “anti-speculation zones” in Seoul, the government has also designated two nearby suburban towns—Gwangmyeong and Hanam of Gyeonggi Province—as “overheated zones.” In these overheated zones, reselling of the purchase rights of new apartments will be restricted and those hoping to buy homes will find it even more difficult to get loans. Meanwhile, the government’s plan to supply more houses indicates a major policy shift, which definitely merits attention. 

So far, the government’s housing regulations have been focused on curbing demand, such as reinforced safety inspections for old apartments waiting for reconstruction, collecting surplus profits from reconstruction, mortgage loan restrictions and higher capital gain taxes. But these measures have failed to put a lid on the upward trend in housing prices. The government looked for something else, something more essential, namely, more supply, to curb the surging housing prices over the long term. I think it is an appropriate measure. It is important to increase the number of houses, but it is also crucial to provide more quality homes. The government has set the policy direction in the right way, but we’ll still have to wait and see how specific the plan is. 

The government’s real estate policy has centered on demand control for the past year. The housing market in Seoul had showed brief signs of stabilizing following the government’s announcement of anti-speculation steps in August last year. But the effects were only short-lived, and apartment prices began to rise again. That’s because the overheated market cannot be addressed solely by demand control based on strict regulations. The government says that it will expand supply, giving a signal to those who do not own homes that they don’t necessarily have to feel compelled to purchase houses. But many are skeptical about the effects of the new measures. 

The recent measures are considered to be less tough than the August 2 policy last year, in terms of the government’s market intervention. I don’t think they will have a major impact on the housing market. Now, the government is controlling demand and increasing supply at the same time. The key is how sensitively the market will respond to the government signal. I don’t think the market will stabilize anytime soon, especially considering the house-moving season of autumn. I imagine housing prices will keep rising for the time being. 

In fact, housing supply in South Korea is not inadequate. The nation’s overall housing supply ratio is over 100 percent, and the ratio in Seoul is 96 percent, meaning that housing demand and supply are almost the same. But the situation is different when it comes to owner-occupancy. 58 percent of people nationwide own homes where they actually live, while the ratio in Seoul stands at 43 percent. In other words, many people own multiple homes for speculative purposes. So, with speculative demand still remaining rampant, more housing supply cannot be a fundamental solution. Having these concerns in mind, the government says that it will carefully watch the market and unveil follow-up measures, if necessary, including tax and financial regulations, aimed at curbing speculative investment. 

Land Minister Kim Hyun-mee has recently said that the ministry will raise the property tax and the comprehensive real estate tax by lifting government-assessed real estate value to a more realistic level. It will increase the tax burden on those who live in neighborhoods that have seen a steep rise in their property value. The government will start its real estate value assessments in October. The result will be reflected from July next year, so the home owners in those neighborhoods will only feel burdened psychologically for now. The government will almost certainly announce more housing regulations in the future, as the governments in South Korea have always released countermeasures against the irrationally overheated housing market since the 1980s. If the market does not stabilize, I guess the government will come up with even tougher regulations, including those related to taxes. 

In another move to calm the housing market, some analysts predict that the government may reduce tax benefits for long-term owners of a single home who own houses for residential purposes for a certain period of time. But the market may develop resistance to regulations, if the government announces anti-speculation measures too often. It is necessary to devise a comprehensive economic policy, which may include measures to funnel floating money in the market into industries, not into the real estate market.