Specter of Housing Price
Nipped in the Bud
- Gov't move to curb apartment price hikes in Seoul area proves effective
The government's recent steps to stem a specter of soaring apartment prices in the Seoul area have paid off, a top housing policymaker said. Seo Jong-dae, director general of housing bureau at the Ministry of Construction and Transportation, said, "All the indications are that the housing market has been returned to normal with some apartment prices, including those related to reconstruction, having shown signs of soaring, coming back to previous levels."
Seo said his ministry came up with a package of steps to preempt a specter of a surge in apartment prices in the Seoul metropolitan area on Feb. 17 a few days after he took office as director general in charge of housing at the ministry.
The recent move came as the housing market, which has been stabilized after a cyclical spell of rising, appeared to undergo uncertainties on a temporary and regional basis in a limited area of the Seoul metropolitan area, caused by a specter of apartment price hikes in connection with reconstruction and a possible overheating of apartment sales in Pangyo, a new city on the southern outskirts of Seoul.
Unlike the overall economic five-year cycle, the domestic housing market has a traditionally long-term cyclical period of rising every 10 years and returning to normal three or four years later - in 1977, 1987 and 1997, but the latest cycle, which was supposed to end in 2001, was prolonged to 2004 due to the 1997 financial crisis. The housing market fluctuates in a mid-term period of five years, and housing prices have a tendency of increasing in February and September yearly, he said.
The ministry's long-term policy to stabilize the housing market is to meet quantitative and qualitative housing demands, which are projected to grow in relation to an increase in people's income, said Seo in an interview with NewsWorld. Last Oct. 29, the government announced a package of countermeasures against real estate speculation, calling for imposing heavier taxes on those who own excessive real estate holdings and transparent transactions. The government's long-term housing construction plan calls for building 5 million units during the 10-year period between 2003 and 2012 across the nation.
Seo forecast that Korea's housing supply rate would be raised to 116.7 percent, similar to those of advanced countries during the target year of 2012. He said he believes that a quantitative housing shortage would be solved by that year as the number of houses is projected to grow to 320 units per 1,000 people in 2012. Under the short-term strategy of stabilizing the housing market, he said, the ministry is trying to prevent excess money liquidity from flowing into the housing market by employing such steps as banning on transactions without registration and imposing higher tax rates. Prices of apartments in Gangnam, including those related to reconstruction, began showing signs of climbing last December, and a specter of overheating sales of apartments in Pangyo loomed over the housing market due to the flip-flopping of the Seoul Metropolitan government and failure on the passage of laws on real estate.
The Seoul Metropolitan Government announced plans to spur reconstruction of dilapidated apartments last Jan. 25, followed by an indication of relaxation of regulations on safety checks on apartments whose reconstruction has yet to be decided. The National Assembly failed to pass a law on the return of profits made by reconstruction of old apartments, supposed to be enacted in late last year. Seo said the government came up with the so-called Feb. 17 measures as housing policymakers shared the view that the traditional housing market cycle had entered a stabilization phase, but such factors as reconstruction and the construction of Pangyo caused uncertainties on a temporary basis and in limited areas.
Contributing to calming down the volatile housing market were the Seoul Metropolitan Government's decision to rescind its plans to relax regulations on safety checks of dilapidated apartments and the height of new reconstruction apartments and the parliamentary passage of the law governing urban refurbishment and residential environment improvement on March 2, he said. Builders of apartments scheduled for reconstruction are now banned from transforming five-story apartments into high-rise buildings, and they are subject to tighter building codes.
Reversing its original plan to divide the sale of 20,000 new apartments into four rounds over the next two years in Pangyo, he said, the government has decided to put on the market them simultaneously in November to stem a possible spiral of real estate speculation. The new apartments scheduled to be put on the market include 4,000 rental apartments.
In a bid to stabilize the selling prices of newly built apartments in Pangyo, the ministry will also introduce a new bidding system in which construction companies, which write in high bidding prices of sites but guarantee selling prices of new apartments, are allowed to land bidding contracts.
In an another step to calm down the housing market, he said, the ministry will develop three more residential areas around the capital - Okjeong in Yanguju, Byeolnae in Namyangju, and Samsong in Goyang City.
Seo said the ministry will employ a policy mix of supply and such regulatory steps as transparent transactions and restrictions on disguised demand. During 2005, 520,000 apartments, including 330,000 units, to be supplied by the private sector, will be constructed. A survey on land prices of OECD countries showed that land prices of advanced countries of the group averaged about 45 percent, higher than Korea's some 20 percent. The problem is that Korean housing buyers tend to try to make money through housing transactions unlike their Western counterparts, he said. nw