Failed real estate policies only repeat mistakes with greater stringency

The South Korean government has shot itself in the foot by accelerating the erosion of public trust over its real estate policy since it, in effect, decided to revoke a rental business registration regime by which owners of multiple homes register as a business operator. Even back in 2017 when the incumbent administration was hell-bent on strengthening real estate regulations, it gave out generous tax and loan benefits to business registration landlords with an aim of helping owners of multiple homes provide quality homes to tenants in the housing market. Such a supportive system drove the number of registered rental businesses up to 510,000 this year from 200,000 in 2016. Such inconsistency in the government’s stance over the rental business registration system will necessarily fuel confusion over the market with registered rental landlords who bought its words left dumbfounded. In the case where a time gap occurs from the effectuation of the three laws regarding home rental and lease, it is tenants who will be left burdened with heavy taxes.

Although the government promised to increase home supplies exclusively for first-time homeowners and allocate 30,000 homes in the nation’s third new towns to be built to quantities under the pre-subscription system, such measures can work their magic only when the actual amount of housing supplies increases in the housing market. Otherwise, market competition will automatically get fiercer for the existing quantities, making no difference in cooling down the overheated South Korean housing market.

The government argues that there is no shortage of housing supplies around the Seoul metropolitan area. However, the reality is a far cry from it. Obviously, a house supply issue exists in the private sector due to the government’s regulations to impose a payment of surplus profits on homeowners of reconstruction projects and cap the price of apartment units being parceled out. Nevertheless, Land, Infrastructure, and Transport Minister Kim Hyun-mi on Friday reaffirmed her stance that easing regulations on housing reconstruction is not on the table. The government outlined its real estate policy directions to increase housing supplies by coming up with various plans for high-density urban development, higher flow area ratio in the third new towns, reconstruction and regeneration projects under public control and management and reductions in vacancy rates in city centers. Given that too many variables are at play in the government’s real estate policy, a slight error in details easily leads to unexpected results. The key lies in how swiftly the government takes effective actions against housing supply shortages.