Gov't to Stabilize Housing Prices
Based on a Demand-Supply Balance

Developing plans to revamp housing unit supply systems, including a cap on sales prices of housing units

Suh Jong-dae, assistant minister of the Office for Housing Welfare at the Ministry of Construction and Transportation, touched on the implementation of a price cap on the selling of housing units, a system to disclose housing unit prices and a housing subscription point system, as part of efforts to revamp housing unit supply systems in his interview with NewsWorld. The following are the excerpts of his interview - ED.
Question: Will you tell our readers about the current status of housing construction so far this year and the target for 2007?
Answer: Permits on the construction of 176,000 housing units have been issued across the nation in the first seven months of this year.
During the January-July period, 72,000 units have been built in the Seoul metropolitan area, almost similar to 74,000 during the same period last year.
Housing construction in the area has shown signs of surging after May as 49,000 units were constructed during the period between May and July, representing a 35.4 percent jump over the same period last year. On the other hand, provincial areas have declining signs as 104,000 housing units were built there during the first seven months of the year, a 36.7 percent plunge from the same period last year.
During this year, approximately 300,000 units and 200,000 units are projected to be constructed in the Seoul metropolitan area and provincial districts, respectively, thanks to a rise in the supply of public housing sites being developed by the government on a continuous basis and the relaxation of construction restrictions on private housing.
In particular, some 223,000 more units are forecast to be constructed in the Seoul metropolitan area during the period between August and December this year with high chances of meeting the 2007 target of constructing 300,000 units. The housing units, to be built during the August-December period, break down to 130,000 units on public housing sites and about 93,000 units on the private housing sites, given applications for requesting project approval on file with local administrative authorities.
The government plans to maintain a close collaboration with related agencies on the current circumstance of housing construction in order to realize the 2007 government target of constructing 300,000 units in the Seoul metropolitan area. To this end, it strives to ensure the timely supply of housing and is throwing efforts into aggressively eliminating hurdles for the issuance of housing construction permits.
Q: Will you introduce the government's mid- and long-term housing supply plan?
A: The government on November 15, 2006 came up with countermeasures to eliminate uncertainties over housing prices centering on the Seoul metropolitan areas. They contained a housing supply roadmap in the Seoul metropolitan areas calling for housing supply in an effective and viable manner.
In the wake of the measures, newly built housing units will average 374,000 per annum during the period between 2007 and 2010, surpassing an annual demand of 300,000 units.
Particularly, a combined 580,000 housing units will be supplied by 10 new satellite cities, including Songpa, Geomdan and Dongttan, under the government's second phase new satellite city development scheme. The figure accounts for 10 percent of the existing housing units totaling 5.91 million in the Seoul metropolitan area, twice as many as a combination of the existing housing units in Bundang and Ilsan, totaling 290,000, and equals to a 2.4 fold of an aggregate number of housing units in the Gangnam area (240.000 units). Prices for selling housing units will be capped starting in September, so new housing units between 15 percent and 25 percent cheaper than the existing ones will be put on the market, thus contributing to stabilizing housing prices based on a balance between demand and supply.
Q: Will you touch on the current movement and prospects of the domestic housing market?
A: Of late, the speculative demand of the housing market has been restricted in the wake of the implementation of the comprehensive real estate holding tax and other taxes and restrictions on extending collateral-secured loans. The housing market has been stabilizing so far this year thanks to a 65 percent surge in the sales of apartments in the Seoul metropolitan area.
Apartment prices have risen 1.6 percent nationwide, 3.0 percent in the Seoul metropolitan area and 2.6 percent in Seoul during the period between January and August 2007, equivalent to approximately one-third of increase rates recorded during the same period of last year. In particular, new satellite cities, including the Gangnam area, Bundang and Pyeongchon, which have taken a lead in pushing housing prices during last year, are showing signs of transparency and stability.
The housing rental market in the Seoul metropolitan area has been stabilizing even during the fall, the peak season for moving, due to a surge of housing units available for rent. Apartment rental prices rose 1.6 percent nationwide, 2.1 percent in the Seoul metropolitan area and 2.3 percent in Seoul during the period between January and August 2007, almost half of increase rates registered during the same period last year.
The housing market is predicted to be stabilized in the second half of the year. The speculative demand for housing is likely to be continuously kept in check as home owners are burdened with the imposition of the heavier comprehensive real estate holding tax into big-ticket housing units around the end of this year and the expansion of restrictions on lending loans to non-banking depository institutions. Under the housing price cap system and housing subscription point system that took effect in September would-be homeless buyers will benefit from a lower housing supply, thus greatly contributing to stabilizing the housing market overall.
Q: Will you elaborate on the significance of the cap on the selling of housing units, a system of disclosing housing unit prices and a housing subscription point system that went into force in September and what effects will the system create?
A: The government has come up with plans to revamp housing unit supply systems, including the cap on the sale of housing units, a system of disclosing housing unit prices and a housing subscription point system, in a bid to put in check uncertainties over housing prices in the Seoul metropolitan area that had been exacerbating in the wake of high-priced sales of apartment units in the late 2006 and to help low-income and homeless citizens buy their own homes.
The cap on the selling of housing units and the system of disclosing housing unit prices have been expanded to cover the housing sites developed by the private sector from September, so housing units will be priced at between 15 percent and 25 percent lower than those put on the market in their neighboring areas where units were sold at higher prices under the price liberalization system. The cap on the selling of housing units will enable home buyers to confirm the composition of housing prices, thus enhancing transparency of the housing industry. The price cap system would lead to a large-scale supply of low-priced housing units, thus greatly contributing to stabilizing the price of the existing housing units.
The housing subscription point system, which will allow residents who have no homes or have many family members to be given priority in the right to buy homes, will effectively lead to a reduction of selling prices of houses for the beneficiaries. It will result in having home buyers wait for the purchase of low-priced housing units, thus stabling prices of the existing housing units.
Q: Will you comment on views that the price cap on the selling of housing units would dampen the supply of new housing units?
A: Those who maintain a possibility that such restrictions on selling prices as the price cap on the selling of housing units will bring about a short-supply of housing units misunderstand the purpose and contents of the implementation of the price cap system.
First concerning the allegations that contracts may suffer from management woes, arising from a drop in profits, thus cutting down on housing construction, the price cap on the selling of housing units is designed to guarantee a profit, equivalent to a range of 5.5 percent of housing selling prices, corresponding to an average of profit the general companies, except those in the housing industry, gain.
Those contractors who can reduce expenditures through effective engineering methods and management innovations will be able to gain additional profits.
Second, some maintain that allotting the expenditures for acquiring housing sites at appraised prices would force contractors to find it difficult to possess plots for construction, thus dampening the housing construction industry. The views have many points that can be misunderstood. The costs for purchasing housing sites are based on appraised prices, which reflect on the values of the market on an objective manner. In reality, appraised prices refer to the prices that reflect on the real value since they are determined when normal transactions are made on the market.
However, initially land lords tend to not sell their lots at the appraised prices, making it difficult for contractors to acquire the necessary land. As part of efforts to solve such problems that may take place, the MOCT has already implemented a system designed to help the private sector and public organizations jointly develop a housing area. Under the system, any contractor who has already bought up more than half of the necessary land but finds it difficult to acquire the remainder will be allowed to ask public organizations to expropriate the land in question. Under the system, house builders from the private sector and public organizations can share construction of housing units under a subscription system or rental housing units. The new system will eliminate a long-standing practice in which some landlords do not yield to some concessions in a land rights disputes to demand hefty land prices, delaying the progress of the whole of the ongoing development project, thus bringing benefits to house builders.
Q: Will you introduce the government's housing polices in the Seoul metropolitan area and provincial districts?
A: Small- and medium-sized construction firms suffer from bigger management problems arising from a rise of unsold housing units than their counterparts in the Seoul metropolitan area. As of June 2007, there are 89,275 unsold units, of which 84,400 units are local in provincial areas. Unsold units shot up 3.2 percent in June 2007 over a year earlier in the Seoul metropolitan area and surged 22.2 percent in the provincial areas.
However, it needs to be prudent in relaxing overall steps to prevent speculative investments into housing, given a tendency of the movability of speculative demand.
Some of the areas designated as real estate speculative zones by the government have lower chances of provoking speculative investments due to long-standing stabilized housing prices. Thirty-five districts designated as real estate speculative zones in Busan, Daegu, Gwangju and Daejeong, have been deregulated on two occasions in the recent months - on June 27 and September 7. The latest government's relaxation move is not a step to back down on its overall anti-speculation policy, but a "customer-tailored housing policy"taken to reflect the circumstance of districts and movement of the market.
The government plans to maintain its anti-speculation steps to stabilize housing prices, but adopt differentiating steps according to the Seoul metropolitan area and provincial districts. It will continue to maintain the operation of anti-speculation zones to keep in check real estate speculation in the Seoul metropolitan areas whereas deregulation the anti-speculation zones if there are slim chance of provoking speculation. However, some areas, still with chances of provoking speculation, will be put on surveillance. nw

Suh Jong-dae, assistant minister of the Office for Housing Welfare at the Ministry of Construction and Transportation