Realty market rebound needed for people’s livelihoods, economy

The realty market that has been in a deep slump for years is showing signs of recovery. With sales of new apartment increasing, the volume of new apartment units that remained unsold started to decline. Buyers are also flocking en masse to court auction of existing apartments, which has pushed up the rate of such homes actually being auctioned off. Sale prices of apartments that would continue to decline have changed course to edge up. It is fortunate that the realty market is showing signs of a rebound after a protracted slump, but it is premature to judge the market has entered a phase of solid recovery.

The "September 1 realty market recovery plan," which was announced by the government on Monday, includes most of the policy measures designed to deregulate the market that the government can afford to take. The measures include reducing the age of old apartments eligible for reconstruction in Seoul, Busan, Incheon, Gwangju and Daejeon by 10 years from 40 years to 30 years. The new apartment sale system has also been significantly revised, with the eligibility of most preferred (grade 1) buyers for new apartment units sold in the Seoul metropolitan region reduced to one year ownership of a bank account, which grants the right to apply for new homes. In order to reduce excessive supply of new homes, the plan also includes a measure to halt the development of new large-scale New Town housing projects such as Bundang and Ilsan in Gyeonggi Province. The new plan deserves positive evaluations compared with measures announced in the past, which had limited impact while ended up increasing resistance to revitalization of the market with piecemeal measures.

Amid the situation where homes account for 70 percent of assets owned by the Korean people, the protracted slump of the real estate market has had huge side-effects. As housing prices plummeted for several years, with realty transactions significantly contracting in volume, home owners have experienced "reverse wealth effect," in which they felt as if their asset value declines even when they did nothing. As homes remained unsold for long even when they were put on sale, not only those "house poor," but also realty brokers, moving companies, interior design firms, furniture companies, and daily laborers at construction sites have suffered serious financial difficulties. Builders also had managerial difficulties due to non-sale of new homes after completion. The recession in the reality market has thus had negative impact on the national economy as a whole. As such, only when a rebound in the real estate market spreads, then can hardships in people’s livelihood be eased.

Measures designed to revitalize the realty market announced this time include matters requiring revision of laws, including discarding of the act on promotion of housing land development, but there are also many measures that the government can put in place immediately through revision of executive ordinances. The government also needs to change sooner rather than later the rates of commissions realty brokers can charge for transactions including rental contracts, which is posing obstacles to a rebound in realty transactions.

In order for Korea to spread in earnest the “Choi Kyung-hwan” effect that has started to emerge for the first time in years, related bills that remained stalled at the National Assembly should be hurriedly deliberated. The main opposition New Politics Alliance for Democracy labeled as a ‘fake bill aimed at improving people’s livelihoods’ the bill to revise the Housing Act that is designed to limit the scope of areas subject to the system capping the price of new apartments to areas with rampant realty speculations, and has continued to block approval of the bill. Insisting on maintaining realty policies that were introduced in an era when housing prices were spiking day after day is an outdated practice turning a blind out to people’s livelihoods and the economy, as they are detained in the outdated frame of ideology.