ANALYSIS Will gov't deregulation measures lead to soft landing of housing market?

Apartment complexes in Seoul / Korea Times file

By Lee Kyung-min

Years of heavy demand-control real estate regulations have all but come to an end, scrapped by last week's government measures put in place to engineer a soft landing of the housing market that experienced extreme overheating under the Moon Jae-in administration and has been plummeting during the past months.

Borrowing limits and other requirements were all lifted except in four districts of Seoul ― Gangnam, Seocho, Songpa and Yongsan. This together with lower taxes on owners of expensive homes and multiple homes is intended to limit further sharp falls in housing prices. The policy seeks to help manage the readjusting of market expectations on housing price trajectories.

Doubt remains, however, over whether the current administration will be able to bring fully under control the consequences of ill-conceived and poorly executed housing policies under the previous Moon Jae-in administration. The grim outlook is not in any way mitigated by recent rapid increases in borrowing rates, a major risk for both households and builders, certain to deepen due to weakening consumption brought on and amplified by global recession fears in the months to come.

The Moon administration levied higher taxes on homeowners and tightened lending rules in a futile attempt to control market expectations. The continued measures only backfired and accelerated further spikes in housing prices. It is now remembered as one of Moon's most devastating policy missteps.

According to the Ministry of Land, Infrastructure and Transport, the government fully lifted the nationwide designation of anti-speculation districts. Excluded from the new measures effective Jan. 5 are three districts in southern Seoul ― Gangnam, Seocho and Songpa ― and Yongsan where the Yoon Suk Yeol administration moved the presidential office from Jongno District.

The loan-to-value (LTV) ratio will be eased to 70 percent, up from 50 percent. No longer needed are detailed plans on financing the purchase of a home. Mortgages will be granted to owners of two homes or more.

The release prices of homes will no longer be capped. Market participants will resume trading the right to buy a home, long criticized as an act of speculation under the Moon administration. Homeowners can immediately rent out their places, after the lifting of previous requirements whereby they were not allowed to do so unless they had lived there for at least two years.

Similarly, the Seoul Metropolitan Government said last week that apartments in the capital will be able to have 35 stories or higher, abolishing a related regulation that took effect in 2014. However, the upper limit of floor area ratios, measured by building area divided by lot area, will not be lowered, a measure to limit excessive development.

The Ministry of Economy and Finance said it will dramatically reduce the heavy capital gains tax on housing transactions by July. The ministry plans to lower the tax on owners of homes who hold them for less than a year to 45 percent, down from the current 70 percent. The rate will be between a standard 6 percent and 45 percent, as long as the holding period is over one year.

Immediate policy outcome unlikely

The slew of deregulations notwithstanding, experts say the sustained declines in housing market prices may not see a quick recovery.

Anchoring the reserved assessment is a rapidly tightening monetary policy and subsequent readjustments in market participants' view on the downward price trajectory.

“The purchasing power of would-be homebuyers will not outpace the sharply climbing borrowing rates,” Myongji University real estate professor Kwon Dae-jung said.

The downward trajectory is therefore likely to continue for the time being, in his view, pushing back the timeline of the desired outcome of the deregulatory measures by a few months.

The view is echoed by Seoul Digital University real estate professor Lee Young-soo.

“The market will not be able to observe a series of price adjustments, not until after the central bank's pace of monetary tightening is significantly moderated in the first quarter,” Lee said.