[In-Depth Review] The Time for Real Estate Measures Considering the Market

Sangsoo Park, Vice President of the Korean Bar Association

The early real estate policy of the Moon Jae-in administration, launched in 2017, can be summarized as a policy for rental business operators. By offering many benefits, the government aimed to encourage registration of rental business operators and impose taxation on rental income without resistance. However, with the rental business operator system and the gap investment craze combined, multi-homeowners began to emerge rapidly, and housing prices started to soar. Thus began the war between the government and multi-homeowners. Policies were implemented to raise all taxes related to housing?acquisition tax, holding tax, and capital gains tax?to block profit realization by multi-homeowners and reduce demand for housing.

The policy, which began to push multi-homeowners into a corner with no exit, produced results different from the government's intentions. Multi-homeowners started to hold on, and housing listings in the market sharply decreased. The rise in actual transaction prices continued unabated. The government began regulating redevelopment and reconstruction projects, aiming to catch real estate speculators. The only potential new supply in Seoul through redevelopment and reconstruction was blocked. The new housing supply next year is expected to be only half of previous years, and this is said to continue into the following year.

With supply sharply reduced and demand remaining steady, housing prices kept rising endlessly. Eventually, the government issued an extreme measure of 0% LTV (Loan-to-Value ratio) for properties priced over 1.5 billion KRW. This triggered a surge in prices in Seoul’s mid- to low-tier areas and regional apartments that had been quiet until then. Ultimately, all apartments rose to near the loan regulation thresholds of 900 million KRW or 1.5 billion KRW. Meanwhile, the ruling party revised the Housing Lease Protection Act within a month of its proposal, under the pretext of protecting tenants, without thorough deliberation. The relatively stable monthly rent and deposit market ended with a sharp increase.

The card the government played was the realization of official property prices. This meant imposing high holding taxes even on single-homeowners and banning jeonse (long-term lease deposits) at move-in for newly supplied apartments subject to the price ceiling system, aiming to reduce the frenzy for subscription applications. Most citizens owning one apartment in Seoul had to pay high holding taxes, and except for the cash-rich, subscription applications became nearly impossible. It became almost impossible for young people to win subscription lotteries, and the disappearance of jeonse supply in new apartments made jeonse stability even more elusive. Recently, the ruling party is again considering easing loan regulations for young people and newlyweds and raising the threshold for comprehensive real estate tax to address these issues. As has been repeated so far, these measures seem likely to solve only the visible problems and bring about new ones.

All the government’s real estate policies since 2017 have been based on good intentions and purposes. Taxation on rental income, recovery of excess profits from redevelopment and reconstruction, protection of housing tenants, and realization of official property prices were all considered necessary at some point. However, these policies were hastily pushed forward as stopgap measures to solve immediate problems without fully considering their impact on the market, resulting in an unprecedented housing crisis with simultaneous rises in housing prices and monthly rents. The current rise in housing prices should not be complacently attributed solely to increased market liquidity due to COVID-19. It is time to honestly acknowledge the government’s shortcomings so far and establish and implement comprehensive real estate measures that carefully consider their potential market impact. Only then will there be a clue to solving the current real estate problems, which seem impervious to all remedies.

Park Sang-su, Vice President of the Korean Bar Association

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