Policymakers Struggle to Revive Property Market
By Yoon Ja-young
Staff Reporter
Korea has been making a series of bold deregulatory steps to keep the property market from going under but the real estate market has been unresponsive. Strategy and Finance Minister Kang Man-soo said that drastic deregulation is in store to resuscitate a swooning real estate market, Friday.
He sees property market deregulation as a way of stimulating the economy, however, some are showing concern that reckless deregulation could be venom to the economy when it rebounds.
``Now is the time when we should be worried about deflation rather than real estate speculation,'' the minister said, calling for overall review of the real estate policies. He added that asset deflation is slashing jobs.
Kang has made deregulatory references on a daily basis. On Thursday, he said he supports delisting Gangnam, Seocho, and Songpa districts in southern Seoul from the government's speculation zone list, scrapping price caps on new apartments, and exempting capital gains tax on those who buy unsold apartments in provinces.
Since the inauguration of President Lee Myung-bak, the government has been taking steps to deregulate the real estate market. It cut the comprehensive real estate tax the former administration adopted against luxurious homeowners, equal to 2 percent of all households, and also slashed capital gains tax despite concern over fiscal stability. It eased restriction on reconstruction of new apartments, and has been deleting districts from the speculation zone list.
The measures go in line with the global collapse of the property bubble. Apartment prices fell by around 30 percent in some districts in Seoul and Bundang and Yongin in Gyeonggi Province, and households are refraining from spending partly due to falling asset value. The government sees that it is adding to the economic recession. Moreover, it is concerned that financial businesses, which gave mortgages totaling 240 trillion won, may be hit when the asset prices fall rapidly.
Though the government had come up with a series of measures to sustain the real estate market from collapse, it hasn't been very successful so far. The number of new apartments piling up unsold in provinces is nearing 150,000.
However, some are showing concern over the reckless deregulation. ``Apartments are piling up unsold as construction companies priced them too high. It is natural that consumers don't want to buy high-priced homes when the market is stabilizing,'' the People's Solidarity for Participatory Democracy said. The NGO wondered why the government is trying to sustain the high prices in apartments.
Some point out that while it is easy to deregulate, it is much more difficult to regulate again. They say that when the market recovers, today's total deregulation can form a bubble in the market. The Kim Dae-jung administration, for example, had a series of measures to boost the real estate market, and the Roh Moo-hyun administration spent five years trying to curb real estate prices.