[Asia Exclusive] "In the Housing Market, Agents Are the Weaker Party... The Prejudice That They 'Raise House Prices' Is False"

Interview with Park Yonghyun, President of the Korea Association of Certified Realtors
Excessive Realtor Supply, Regulations, COVID-19... Crisis
Issues Must Be Addressed for Transparency in the Real Estate Market
Mandatory Association Membership and Granting of Supervisory Enforcement Authority Needed

Asia Exclusive Interview with Park Yong-hyun, President of the Korea Association of Certified Realtors. / Photo by Kim Hyun-min kimhyun81@

[Interview = Jeong Doohwan, Head of Construction and Real Estate Department, Summary = Reporter Moon Jewon] "Recently, due to government regulations and economic recession, real estate transactions have contracted, putting many licensed real estate agents in difficult situations. If the number of licensed real estate agents continues to increase sharply every year as it is now, competition will become even fiercer, inevitably leading to various side effects. To create a transparent real estate market, it is essential to address these fundamental issues first and foremost."

The contraction of the real estate transaction market is serious. Since March, as the downward trend in housing prices has spread, transactions have sharply declined. Voices from the field indicate that more brokerage offices are in a state of semi-closure. The government's high-intensity regulations combined with the aftereffects of the novel coronavirus disease (COVID-19) are significant challenges.

Park Yonghyun, president of the Korea Association of Licensed Real Estate Agents, a group of about 106,000 licensed real estate agents nationwide, also assessed the brokerage industry as being in a 'crisis.' However, he argued that the fundamental cause of this crisis is the "excessive issuance of licensed real estate agents."

President Park explained that while the market fluctuates between boom and recession due to external factors, the number of licensed real estate agents has increased by tens of thousands annually, causing abnormally intensified competition. Excessive competition has led to increased disputes among agents and social costs due to false advertising, collusion, and so forth.

On the 17th, at the Korea Association of Licensed Real Estate Agents headquarters in Cheongnyong-dong, Gwanak-gu, Seoul, we met President Park to discuss the challenges and solutions of the licensed real estate agent industry and ways to develop the sector.

- Real estate transactions have been significantly contracted due to prolonged COVID-19 and continuous government regulations. How is the industry's situation?

▲ There were many regulations last year. Nevertheless, in some areas, buying sentiment was very concentrated, while in others, transactions contracted. The real estate phenomenon is localized. However, overall, it is true that transactions have been greatly reduced. Naturally, brokers have less work and face difficulties. Statistics from last year show that more brokerage offices closed than opened. This indicates many brokers were struggling.

- The number of licensed real estate agents is increasing sharply every year. Some analyze this as a government measure to alleviate unemployment.

▲ In 2018, 16,885 candidates passed, and last year, it reached 27,078. Although fluctuating yearly, the total number of licensed real estate agents is too high. The market should be transparent, but indiscriminately issuing licenses leads to excessive competition and many side effects. There are 450,000 people holding real estate agent licenses, but only 106,000 (23.5%) are actually practicing licensed real estate agents. The position of brokers is quite unstable.

- There is also a perception that licensed real estate agents encourage speculation in the real estate market.

▲ There is an unfair aspect to that. Brokers cannot promote speculation. If you understand the transaction structure, you could never say that. To claim so, brokers would have had to participate when housing prices in Gangnam, Seoul, rose sharply last year or in Seongnam and Suwon this year. In reality, very few brokers have made significant money.

- Recently, there was a controversy over price collusion in places like Mokdong. Some say brokerage offices are the main actors in collusion, while others argue that homeowners are the fundamental cause.

▲ The government seems to think brokers played a big role when housing prices rise. But brokers are the 'secondary party.' For example, if the market price of an apartment is about 500 million KRW, and a homeowner who is not in a hurry asks the broker to advertise it at 600 million KRW, the broker has no choice but to list it at that price. Then, would other homeowners list their homes at 500 million KRW? If a transaction is made at 600 million KRW, the 500 million KRW listings disappear, and the asking price jumps to 650 million KRW. If a broker lists a property at 500 million KRW, they get a reputation for incompetence within the complex. Some homeowner communities even report such listings as false. From August, brokers posting false listings will be fined, so they have no choice but to comply with homeowners' demands. In the current transaction structure, brokers have no price-setting authority.

- Are there alternatives to secure a transparent transaction market order?

▲ The Korea Association of Licensed Real Estate Agents must be made a mandatory membership organization. Then, like bar associations, it can create autonomous ethical regulations. A system should be established to penalize violations, such as listing properties at 600 million KRW when the market price is 500 million KRW. Brokers know best if illegal acts or unregistered brokerage occur in their area. The association can receive reports and impose penalties to self-purify. This is the first way to make Korea's brokerage market transparent.

- With platforms like Naver Real Estate, Zigbang, and Dabang emerging, the brokerage industry has changed significantly. Conflicts sometimes arise between traditional brokerage offices and new platforms. Any ideas to resolve these conflicts?

▲ The brokerage industry is changing a lot. With the growth of Zigbang and Dabang, brokers feel a heavy burden from advertising costs. However, the industry must also change to survive. Education should be strengthened so brokers can develop, and it is time to scale up. Brokers should form corporations and specialize by gathering three, five, or thirty members. For example, a 1.5 billion KRW building is rarely entrusted to a general brokerage office. For 50 to 100 billion KRW deals, large law firms are involved, not brokerage offices. We must specialize and diversify to handle everything from general housing to large real estate.

- Is there room for collaboration with the Ministry of Land, Infrastructure and Transport for industry development?

▲ No matter what anyone says, there is no expert like licensed real estate agents in the real estate distribution market. Brokers are always on-site, so they know best why prices rise. It would be good if the government could establish a system to hear frontline brokers' opinions when making policies. Among active brokers, 148 hold doctoral degrees. Utilizing this talent pool could strengthen Korea's real estate policies.

- A downward trend in housing prices is being sensed everywhere. How do you forecast the market?

▲ Due to the government's strong will, I expected a downward trend through an adjustment period, but with the economic recession caused by COVID-19, I think the decline will continue for a considerable time.

- Does that mean a possibility of a housing price crash?

▲ If prices rose by 10 during the upswing, they fall by 1 or 2 during the downswing. So, prices are still 8 higher overall. This pattern has become a learning effect for the public. The general election is over, and government regulations will be strengthened, so short-term shocks are inevitable. But in the mid to long term, recovery is inevitable. Considering real estate prices and citizens' incomes, current prices are quite high. However, globally, they are not extremely high. Of course, some areas like Gangnam are excessively high.

- How do you evaluate the government's continuous strengthening of regulations?

▲ Regulation breeds regulation. Ironically, during the Park Geun-hye administration, people were told not to rent but to buy homes with loans. Yet, people did not buy, and prices did not rise much. Now, the government strongly regulates when prices rise slightly. Still, prices strangely rise. In the short term, the market cannot beat policy. But in the long term, policy can never beat the market.

- What do you think needs urgent improvement in the government's real estate regulations?

▲ I think real estate loan regulations need revision. They go against the market economy. There are also problems where actual buyers, not speculators, suffer. Also, if you live in a rental house worth 700 to 800 million KRW, you pay no property tax, but if you live in a multi-family or multi-unit house worth 500 to 600 million KRW with about half the price financed by loans, you pay full taxes. This part also needs adjustment.

Interview = Jeong Doohwan, Head of Construction and Real Estate Department

Summary = Reporter Moon Jewon

This content was produced with the assistance of AI translation services.