Government: "Medium- to Long-Term Housing Price Decline Inevitable... Overwhelming Housing Supply Visible Next Year"

Next Year's Real Estate Stabilization Measures Joint Government Briefing
Positive Evaluation of Moon Jae-in Government's Real Estate Policy
House Price Decline Expected Considering Population and Supply
2.05 Million Households to be Normally Supplied... Strengthened Liquidity Management

President Moon Jae-in is speaking at the video cabinet meeting held at the Cheong Wa Dae Yeomin Hall on the 21st.
[Image source=Yonhap News]

The government recently stated that a medium- to long-term decline in housing prices is inevitable when considering housing supply, finance, and demographic conditions. It explained that the highest level of supply in history is expected over the next 10 years, and since major foreign countries are also implementing liquidity normalization policies, the housing prices that surged rapidly so far are bound to enter a downward trend.

Meanwhile, the government announced plans to focus all efforts on expanding supply, managing liquidity, and cracking down on disruptive real estate activities to stabilize the real estate market next year as well. It emphasized that it will carry out the previously announced plan to supply 2.05 million housing units without delay to achieve overwhelming supply and will maximize private sector supply by improving the feasibility of private reconstruction and redevelopment projects.

On the 27th, the Ministry of Land, Infrastructure and Transport, the Ministry of Economy and Finance, the Financial Services Commission, and the National Tax Service held a joint briefing at the Government Seoul Office and presented the "Five Key Tasks for Real Estate Market Stabilization in 2022," which included these contents.

Increasing Supply and Strengthening Regulations... But Unable to Prevent Sharp Rise in Housing Prices

First, the government generally evaluated the Moon Jae-in administration's real estate policies positively. It explained that over the past four years, an average of 546,000 housing units were supplied annually, and public housing sites were designated at about three times the amount of the previous administration, with an annual volume of 91,000 units, significantly expanding the future supply base.

It also assessed that tax and financial regulations were strengthened against speculative real estate purchases by multi-homeowners and corporations, while various supports were expanded for ordinary citizens to create a market centered on actual demand. The government said, "To expand the chances of winning housing subscription for the homeless, the proportion of the point system was increased, special supplies for youth and newlyweds were expanded, and a partial lottery system was introduced. As a result, the proportion of purchases by multi-homeowners and corporations decreased by more than 50% compared to before, and the proportion of housing subscription winners who are homeless reached 99%."

Furthermore, through the housing welfare roadmap announced in November 2017, the government supplied about 140,000 public rental housing units annually, the highest level ever, achieving an OECD average stock rate of 8%. As a result, a total of 3.7 million households received various housing welfare services such as public rental housing, financial support, and housing benefits, it emphasized.

However, it also mentioned the limitations of the policy. There was a mismatch in the location and timing of housing supply, and despite comprehensive measures, asset inflation could not be prevented under ultra-low interest rates, causing an unprecedented surge in housing prices. Regarding this, the government added, "Low interest rates and asset price increases are common phenomena experienced by major foreign countries such as the United States and Germany."

[Image source=Yonhap News]

Population Decline and Supply Expansion... Government: "Housing Price Decline Inevitable"

The government analyzed that considering key future variables, the housing market will inevitably enter a medium- to long-term downward trend. On the supply side, the highest level of supply in history is scheduled over the next 10 years, with an average of 560,000 units nationwide, 310,000 units in the metropolitan area, and 100,000 units in Seoul annually. Additionally, major foreign countries such as the United States and the United Kingdom have begun full-scale normalization of monetary policy, including asset purchase reduction and interest rate hikes.

The financial authorities also plan to manage the household debt growth rate at 4-5%, the pre-COVID-19 level, by introducing measures such as the Debt Service Ratio (DSR) for macroprudential management. In particular, it is estimated that the working-age population (ages 15-64) will decrease by 360,000 annually over the next 10 years, and a total population decline of 8.76 million is projected by 2040, indicating increased downward pressure on the housing market from the demographic side.

The government said, "If the gradual normalization of monetary policy and the expansion of housing supply proceed without disruption, the medium- to long-term stability of the housing market is expected to become stronger. The government aims to lay the foundation for market stabilization by focusing on tasks to accelerate this medium- to long-term stability in 2022."

Normal Supply of 2.05 Million Units... Improvement of Private Redevelopment Regulations

To stabilize the real estate market, the government plans to implement five key tasks: ▲ speeding up housing supply ▲ carrying out existing supply plans without disruption ▲ consistent household debt management ▲ creating a transparent real estate market ▲ restoring the housing ladder for the middle class.

First, 32,000 units will be supplied through public pre-subscription next year, and private pre-subscription will begin early supply in downtown Seoul for the first time. For private pre-subscription, a total of 34,000 units will be sequentially supplied quarterly in excellent locations within the metropolitan area such as Seongnam Bokjeong, Uiwang Wolam, and Siheung Hajung, and 4,000 units will be supplied in Seoul and other metropolitan areas through the urban public housing complex projects where district designation has been completed.

In particular, the government explained that it will increase the supply speed of private redevelopment and reconstruction projects in Seoul through institutional improvements. From September next year, integrated reviews will be applied to private redevelopment projects, and from April, the Korea Real Estate Board will first verify the total project cost to prevent duplicate procedures. Also, to minimize tenant conflicts, compensation scope will be expanded based on incentives, and early support for relocation costs will be provided.

Business feasibility will be improved through rationalization of redevelopment regulations. Support will be provided for flexible operations such as integrated promotion of street maintenance, conversion to small-scale redevelopment, and allowing the calculation of rental housing floor area standards. Additionally, short-term housing supply financial support will be strengthened to induce supply expansion.

To normally proceed with the previously announced plan to supply 2.05 million units, the government will promptly designate districts for 430,000 units next year and additionally discover more than 100,000 units in downtown candidate sites with high proximity to workplaces. It will prepare a supply plan for 15,000 public self-owned houses in the 3rd new towns by June next year and recruit residents early for 2,000 units of newlywed hope towns.

The number of autonomous districts in Seoul where the average apartment sale price exceeds 50 million KRW per 3.3㎡ has more than doubled in one year. As of November last year, only Gangnam-gu, Seocho-gu, and Songpa-gu among the 25 autonomous districts in Seoul had average apartment sale prices exceeding 50 million KRW per 3.3㎡, but last month, Yongsan-gu, Seongdong-gu, Mapo-gu, and Gwangjin-gu were added, making a total of seven districts. The photo shows the view of Seoul apartments from 63 Square. Photo by Kim Hyunmin kimhyun81@

Strengthening Liquidity Management Next Year... Focused Crackdown on Disruptive Activities

The government also announced a policy to curb market liquidity to stabilize housing prices. With the expansion of borrower-level DSR application next year, loans will be managed to be issued only within the borrower's repayment capacity. While establishing the practice of repaying debts in installments, the qualitative structure of household loans will be improved to prepare for the risk of rising interest rates.

However, measures will be taken to ensure that vulnerable groups and actual demanders are not harmed by loan regulations. The special guarantee limit for jeonse loans for vulnerable groups such as basic livelihood security recipients will be expanded, and additional extensions of the preferential program for the Bogeumjari Loan for low-income earners will be considered. To expand opportunities for homeownership for the homeless and actual demanders, the Didimdol Loan support limit will be raised from January next year, and the supply of funds related to housing stability such as group loans will be managed without interruption.

Customized real transaction investigations will be strengthened considering the characteristics of market disruption in regions such as the metropolitan area and provinces. Cases where economically disadvantaged teenagers purchase high-priced houses in Seoul and the metropolitan area will be investigated, and illegal brokerage and under-the-table contracts for apartment pre-sale rights will be intensively cracked down on in small and medium-sized provincial cities.

Indicators such as transaction price changes and record prices will be monitored, and in regions with unusual trends, in-depth investigations will be conducted. An algorithm will be developed by June next year to eradicate illegal subscription activities.

The Korea Land and Housing Corporation (LH) will faithfully implement the innovation plan announced last June to become a trusted public institution. The government emphasized, "We will concentrate all capabilities of related ministries to stabilize the real estate market so that the public can worry less about housing prices. We will strive so that the younger generation can nurture their dream of homeownership and vulnerable groups can have a stronger housing safety net."

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