[Desk Column] Only the Comprehensive Real Estate Tax? Will Anti-Market Loan Regulations Be Left As They Are?

The angry voice of acquaintance A, who runs a small business, came through the receiver. "The house prices are so high that I can't get a single loan. Does this make any sense?" Even without hearing the rest, the situation is easy to guess. It’s already hard to run a business due to COVID-19, and when A went to the bank to get a loan using the apartment in Mokdong, Seoul, where they live, as collateral, the loan was rejected because the house price exceeded 1.5 billion won.

"I've lived in this house for over 10 years. Did I speculate? The government failed to control the house prices, so why should I suffer?" In the end, A covered the shortfall with a much higher interest rate unsecured loan.

This is a phenomenon caused by the government’s restriction on mortgage loans through the December 16, 2019 measures aimed at controlling house prices. In speculative overheated districts like Seoul, loans are limited to 40% of the house price for homes priced under 900 million won, and 20% for the portion exceeding 900 million won, while loans are completely banned for houses priced over 1.5 billion won. Due to this regulation, an apartment valued at 1.4 billion won can get a maximum loan of 460 million won, but an apartment worth over twice that, at 3 billion won, has a collateral value of ‘0’?a situation that defies market principles and has persisted for nearly a year and a half.

This raises the question: Did this actually control house prices?

According to a recent analysis by an information provider of KB Real Estate’s housing price statistics, the average sale price per 3.3㎡ of apartments in Seoul was 23.26 million won in May 2017 when the Moon Jae-in administration began, and rose to 43.58 million won last month, four years later. This is an increase of 87.4%. Notably, the areas with the highest price increases during this period were Seongdong, Nowon, Dongjak, and Dobong districts?areas far from the Gangnam area. As a result, the government’s plan to curb house prices by blocking ‘gap investments’ through anti-market loan regulations has failed.

The problem is that ordinary citizens, not speculators, are suffering collateral damage in this process. It’s not just small business owners like A. There are also many complaints from genuine buyers who want to move to larger homes as their children grow. Due to the sharp rise in house prices, most 30-pyeong (approximately 99㎡) apartments in Seoul have exceeded the loan ban threshold, making it impossible to “borrow to upgrade the home and then repay through hard work.” Even if they manage to secure funds, another obstacle is capital gains tax. Even for single-homeowners, capital gains tax must be paid on the portion exceeding 900 million won. B, who recently tried to move to a larger unit in the same complex, calculated the capital gains tax online and said, "I have to pay over 40 million won in tax," and decided not to sell the house out of frustration.

The side effects of loan restrictions are no different in the new apartment market. There is a regulation banning group interim payment loans for apartments priced over 900 million won in regulated areas. Many non-homeowners, whose assets are mostly tied up in jeonse deposits, have no way to cover the funds needed for apartment purchases without group interim payment loans. This is why well-located new apartments in Seoul have become a feast only for cash-rich buyers.

Because house prices have already risen so much, even if the upward trend stops now, it is embarrassing for the government to claim that “house prices have stabilized.” Bowing one’s head in regret over policy failure is too late. Even the subsequent supplementary measures have been ‘as expected’?only superficially plausible supply measures aimed at appeasing public opinion have followed.

At this point, lifting the regulations might be the best way to prevent further alienation of public sentiment that has already turned away.

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