Reconstruction of apartments gains traction

As interest in apartments subject to reconstruction in Seoul and nearby regions revives, housing prices are going up again. According to housing market analysis institutions, the prices of apartments in Seoul stopped an 11-week streak of decreasing and began to remain steady as of April 4. In particular, housing prices went up in three Gangnam districts with good schools and Yongsan district to which the presidential office will be moving. The prices of apartments in first-generation new cities, such as Bundang and Ilsan, are going up again after a sharp decrease in transactions. Housing prices that have gone down due to interest rate increase and economic instability at home and abroad seem to be going up again.

The reason behind the rising prices of apartments subject to reconstruction in Seoul and new cities is the expectation that reconstruction projects will be accelerated under the new administration, which will ease real estate-related regulations. President-elect Yoon Seok-youl put forward many pledges to ease regulations to boost housing demand, such as expanding supply, easing the regulation to mandate the restitution of surplus profits generated by housing reconstruction, revising the regulation to cap the price of apartments being parceled out, and increasing credit line. The fact that 30 percent of 149 houses sold in Seoul during the three weeks following the presidential election were sold at the highest prices demonstrates that the sentiment expecting housing prices to rise further due to changes in policy stance is already preval‎ent.

It is true that housing prices surged due to housing policies focused on regulations without taking account of supply. However, hurried easing of regulations to keep the pledges made can send a wrong signal to the real estate market. Confusion grew more as the presidential transition committee announced a measure to suspend the heavy taxation of transfer income taxes for multiple home owners for a year at the end of last month but the government refused to accept the measure. While the committee expected to reduce the burden of transfer income taxes to encourage more supply, there are many multiple home owners who take it as a sign to hold out longer. Near-sighted real estate policies that switch from one end to the other will only cause damage to those who actually need housing.

While it is important to gradually increase the housing supply with the private sector leading the movement, quick policies to flip everything around at once will create too many side effects. As simultaneous reconstruction can lead to housing price surges in nearby areas, cautious approaches are needed by gradually conducting reconstruction projects by apartment complex and controlling the disturbance of the market, such as housing price collusion. A single change in real estate policies can impact the overall economy by creating a change-reaction in the ‘perfect storm’ crisis of global interest rate rise and inflation. Without a strategy that comprehensively considers demand and supply, as well as inflation and economy, the South Korean economy will be tied down by housing prices and spend another five years in pain.