Success of price cap relies on stabilizing bubble-prone areas
The government announced Monday that it would put a price cap on new apartments supplied by private builders. The toughened anti-speculation policy will focus on most popular residential areas, including the three southern Seoul districts of Gangnam, Seocho and Songpa called the "Gangnam Trio," which have taken the lead in pushing up housing prices.
According to the Ministry of Land, Infrastructure and Transport, private builders will not be able to determine housing supply prices on their own in 31 "hottest" residential districts, starting October. The government introduced a similar system in 2007 but has all but suspended it since 2014 by excessively tightening conditions for applying the price ceiling system. Now, the Moon Jae-in administration is about to relax those application standards to nip the speculative fervor in the bud.
The eased enforcement decrees mainly call for two things ― setting upper limits for housing prices in areas designated by the ministry as "overheated speculation zones," and lengthening the minimum resalable period from four years to 10, to block cash-laden investors' short-term profiteering. Critics point out, however, the extension of the resalable period will not solve the problem because only people with sufficient cash in hand can subscribe for purchasing homes in the hottest areas. Government policymakers should pay heed to these concerns.
The government has yet to designate which parts of the 31 districts are subject to the price cap, and from when, meaning it will continue to take a firm grip on the situation. Officials expect apartment prices in southern Seoul and other bubble-prone districts may go down by up to 30 percent.
The new policy has some downsides, too, such as the concentration of idle funds in the property markets amid the re-advent of a low-interest era worldwide. Policymakers should also prepare for potential market instability resulting from a possible supply shortage. The policy's success lies in whether the government can make speculators realize they can seldom make money through property dealing, especially in southern Seoul and other speculative areas. It is also time for policymakers to go beyond restricting short-term resale toward working out systemic devices to soak off most of the unearned income.
The government announced Monday that it would put a price cap on new apartments supplied by private builders. The toughened anti-speculation policy will focus on most popular residential areas, including the three southern Seoul districts of Gangnam, Seocho and Songpa called the "Gangnam Trio," which have taken the lead in pushing up housing prices.
According to the Ministry of Land, Infrastructure and Transport, private builders will not be able to determine housing supply prices on their own in 31 "hottest" residential districts, starting October. The government introduced a similar system in 2007 but has all but suspended it since 2014 by excessively tightening conditions for applying the price ceiling system. Now, the Moon Jae-in administration is about to relax those application standards to nip the speculative fervor in the bud.
The eased enforcement decrees mainly call for two things ― setting upper limits for housing prices in areas designated by the ministry as "overheated speculation zones," and lengthening the minimum resalable period from four years to 10, to block cash-laden investors' short-term profiteering. Critics point out, however, the extension of the resalable period will not solve the problem because only people with sufficient cash in hand can subscribe for purchasing homes in the hottest areas. Government policymakers should pay heed to these concerns.
The government has yet to designate which parts of the 31 districts are subject to the price cap, and from when, meaning it will continue to take a firm grip on the situation. Officials expect apartment prices in southern Seoul and other bubble-prone districts may go down by up to 30 percent.
The new policy has some downsides, too, such as the concentration of idle funds in the property markets amid the re-advent of a low-interest era worldwide. Policymakers should also prepare for potential market instability resulting from a possible supply shortage. The policy's success lies in whether the government can make speculators realize they can seldom make money through property dealing, especially in southern Seoul and other speculative areas. It is also time for policymakers to go beyond restricting short-term resale toward working out systemic devices to soak off most of the unearned income.
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