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| President Moon Jae-in, left, walks past Land Infrastructure and Transport Minister Kim Hyun-mee in this file photo taken at Cheong Wa Dae, Feb.27. Korea Times file |
Backfiring real estate policy fuels public uproar
By Lee Kyung-min
The government's headstrong push to continue its failed real estate policies will only disorient the market, drawing backlash from the public whose prospects of affordable housing are deteriorating, market watchers and economists said Friday.
Haphazard policies demonizing speculation lack consideration for the housing conditions of most people, and will only lead to an even more rapid jump of already high prices, leaving prospective buyers further demoralized.
The top priority should be instilling confidence in the availability of affordable housing in the market, which in turn will prevent anxiety-driven panic buying, thereby stabilizing prices, they added.
Misplaced anger at land minister
Land, Infrastructure and Transport Minister Kim Hyun-mee was called in, Thursday, by President Moon Jae-in whose approval rating has fallen below 50 percent, partly due to debates over Cheong Wa Dae's real estate policy.
The sudden debriefing was to scold her into drafting more "effective" policies to win back key young and middle-aged voters frustrated by the decreased prospects of owning a home as housing prices jumped further despite stronger measures announced June 17.
President Moon's rare face-to-face meeting with the land minister came less than a day after the Citizens' Coalition for Economic Justice (CCEJ), a left-leaning civic group, said eight senior Cheong Wa Dae officials owning two homes or more have seen their asset value jump over 700 million won ($582,000) since Moon took power in 2017. Their combined assets averaged 1.98 billion won as of June, up 730 million won from 1.17 billion in May 2017. Similarly, of the country's 18 ministers, seven have at least two homes.
The group's data released in June showed the median price of apartments in Seoul soared 314 million won, or 52 percent, over the past three years.
Wednesday's report immediately drew heavy backlash from tenants who were asked by landlords to pay a higher deposit to avoid eviction, amid the supply shortage driven by the government's measure tightening mortgage rules. Korea has a unique rent system, whereby tenants pay a lump sum deposit known as 'jeonse' instead of monthly rent. Raising the deposit is also a convenient way for landlords to offset the heavier property tax the government seeks to impose to curb real estate speculation.
The disparity between supply and demand has led to a steady increase in jeonse prices. Data from KB Kookmin Bank showed the average jeonse price of an apartment in Seoul has jumped 30 million won, or 6.3 percent, to 491 million won in June from a year earlier, continuing the upward trend for the 14th consecutive month since May 2019.
The price jumped 9.2 percent from two years ago and 20 percent from four years ago, reporting a 20 million won year-on-year increase since 2016.
Also illustrating the supply shortage is the declining trade volume of homes put up for jeonse and monthly rent transaction. Data from Seoul Metropolitan Government showed their trading volume dropped to 6,085 in June from 18,999 in February. May was the first time the city government saw the figure drop below 10,000 in its time compiling related data which it began in 2011.
More concerning is the expected further price hike in 2021, due to the reduced volume of new apartment construction. Real Estate 114, a real estate market data provider, said only about 136,000 new homes will be available in Seoul and Gyeonggi Province, down by 52,000 from 188,000 in 2020.
Stronger rules in vain
The "strengthened" measure ordered by Moon in that sense will only compound the situation, given the lack of ways to factor in market principles and people's expectations, experts said.
Included among the four-pronged measure is a revision pending at the National Assembly to swiftly impose a capital gains tax of 4 percent on owners of multiple homes, up from 3.2 percent. Moon asked for a tailored measure devised to give tax incentives to people buying a home for the first time as well as help to ensure stable housing for jeonse tenants. More apartments will be made available and the government will implement additional measures at any sign of further price hikes.
Yet, the heavier tax on multiple home owners will be paid by jeonse tenants in the form of higher deposits, exacerbating the vicious cycle that the government seeks to break, according to Myongji University professor of real estate Kwon Dae-jung.
"The government said it will devise a plan to help jeonse tenants, but a heavier tax is pointless considering it will end up only hurting the tenants," he said.
The government should let the property market boom which would inevitably result in some failed investments, Seoul National University economist Lee In-ho said.
Some investors may sell off properties if they experience an unmanageable plunge after a market peak. Then, in his view, other market participants will learn that buying property does not always guarantee a windfall, driving down the explosive demand.
"This is how markets should and could work, without the current frantic government efforts becoming ever more desperate," Lee said.
