ed Boosting property market
What’s needed most is to normalize transactions
The government appears determined to boost the property market by activating real estate redevelopment, especially in the posh districts of Gangnam (southern Seoul), despite controversy over favoritism and speculation in those areas.
In its report to President Park Geun-hye earlier this week, the Ministry of Land, Infrastructure and Transport said it would lift property regulations, which have been considered outdated and overly restrictive, across the board.
The ministry’s plan, among other things, envisions dismantling three key rules that were introduced to combat speculation, when the nation’s real estate market was overheating.
One measure imposed a heavy burden on owners of apartments who obtained speculative gains through redevelopment. For instance, if the price of a person’s apartment rose by more than 30 million won after redevelopment, the owner had to pay up to 50 percent of the increase as a levy.
Another regulation obliged owners of redevelopment apartments in densely populated areas to make 60 percent of the newly constructed apartments smaller than 85 square meters. The regulation was aimed at providing more small apartments for the working class, but instead it caused the property market to experience a big slump as the business prospects of redevelopment projects took a hit.
The ministry also plans to eliminate a rule that obliges multiple homeowners at redevelopment zones to only have one unit. So if the regulation is lifted, they will be able to own as many units as they want after redevelopment.
To be sure, all these regulations betray free market principles, and it’s right and desirable for the government to push for their removal, given the drastic changes in the conditions of our property market. In fact, there have been strong calls to lift these rules because the nation’s property market has been mired in a deep downturn since the Lehman Brothers debacle in 2008.
The latest real estate stimulus package comes on the heels of the land ministry’s policies on boosting property transactions through permanent cuts in acquisition taxes, abolition of heavier capital gains taxes on multiple homeowners and other measures.
Fortunately, the initiative helped stimulate the dormant real estate market with apartment prices in Seoul and its surrounding metropolitan areas rising an average 0.2 percent for the first time in three years.
The latest package came under fire for only favoring homeowners in southern Seoul and lacking viable measures for tenants who have grappled with soaring “jeonse” pricess, the large monetary deposits given to landlords in Korea.
But this is the time to normalize our real estate sector. Given that properties account for more than 70 percent of assets held by Koreans, it’s essential to revitalize the property market so that it can cause consumption to be revived. This will also influence real-estate related businesses positively.
What’s needed most is to normalize property transactions, and it’s necessary in this regard for the opposition parties to cooperate to pass related bills as soon as possible. The government, for its part, needs to expand the supply of properties available to be rented on a monthly basis.