Even foreigners fall for the myth of Seoul apartment market

The South Korean authorities recently caught a “chat room manager” who gathered more than 100 apartment landlords in Seocho-gu, Seoul, to create a chat room and lead a price-fixing scheme. The landlord, who led them to raise apartment prices by 200 to 300 million won, is reportedly a Korean Chinese. The fact that even a foreigner believes in the myth of Seoul's invincible apartment market and attempts to manipulate prices is a bad sign that the market is becoming distorted. If left unchecked, it could quickly become a speculative market.

As things are becoming serious, the government held the first meeting of the Real Estate Task Force (TF) on Thursday and vowed to “review all available policy measures to dramatically expand housing supply from square one.” Just two weeks after Land, Infrastructure, and Transport Minister Park Sang-woo dismissed the rising house prices as a “temporary bump in the road,” he changed the diagnosis to a serious illness that would require the use of “all available policy instruments.”

The government claims to be “vigilant and thoroughly monitoring the market situation,” but it's not reliable. The task force meeting, co-chaired by Kim Beom-seok, the first Vice Minister of Economy and Finance, and Jin Hyun-hwan, the first Vice Minister of Land, Infrastructure, and Transport, invited government officials and the Financial Services Commission but left out the city of Seoul, which knows the real estate scene of Seoul best.

The government's lack of understanding of the scene is largely to blame for the disruption of the stabilization phase of housing prices, which the president had self-proclaimed. The government failed to manage a villa (non-apartment property) jeonse fraud scheme in Seoul and the metropolitan area, causing the jeonse demand for villas to shift to apartments. Releasing special loans for couples with a newborn, even as jeonse prices rose, has sparked a rise in house prices. According to the Land, Infrastructure, and Transport Ministry, special loans for couples with a newborn are restricted to households with newborns and homes priced at 900 million won or less, so they are not directly linked to the rising prices in Seoul. But this claim ignores the reality of real estate transactions. “Surprised by rising jeonse and house prices, households in their 20s and 30s are taking out the low-interest special loans to buy homes in the metropolitan area that cost less than 900 million won, and landlords in their 40s and older who sold their homes to them are using the money to move into Seoul, creating a 'domino effect,” says the market.

What is worrisome is the situation in which the government is trying to cover up its failures with inconsistent measures, such as tightening the housing supply and real estate regulations, which could stimulate the market. When housing supply insecurity and speculative sentiment meet, the asset market becomes unmanageable, even if you produce apartments in series like bread from a mold. To stabilize house prices, we need to find solutions on the ground, not from our desks.

The first test of whether Seoul's house price growth will continue will come in September, when the special loan program ends and household lending regulations are tightened. The president's office and the ruling and opposition parties should refrain from making any political statements or exerting pressures, such as interest rate cuts, real estate tax cuts, or delaying lending regulations, that could stimulate the market. Last month, the authorities abruptly pushed back the implementation of the second phase of the stressed debt service ratio (DSR) by two months, just six days before its planned implementation, fueling ‘last-minute demand for loans.’ The mortgage loan balances of the five largest commercial banks, which had already exceeded the annual target for household loans, surged to more than 5 trillion won this month, and Seoul apartment prices rose for the 18th consecutive week. It is a situation the government has reaped as it has sown. Whether Seoul's housing prices will stop as ‘a temporary bump along the road’ or turn into a ‘perfect storm’ that sways public opinion like the last presidential election will be up to the government.