[Opinion] A Self-Operating Real Estate System Must Be Established

[Asia Economy Reporter Kim Min-young] The current administration has excessively gone against the basic flow of the market economy. Despite strong demand suppression, housing prices have surged rapidly, resulting in the stigma of policy failure. This has shown the limitation that demand suppression policies alone cannot stabilize the housing market. On the other hand, the new government is expected to proceed with significant supply expansion and tax relief policies. In particular, supply expansion through adjustments to the reconstruction safety inspection standards and easing of the reconstruction excess profit recovery system, as well as improvements in laws and systems to promote rapid remodeling, are also expected to be pursued.

The new government has a broad framework of expanding supply where there is demand. There is also a strong demand for deregulation in the reconstruction and redevelopment markets. However, easing and support are needed that do not cause excessive development profits or act as a cause of rising housing prices. As a measure to revitalize reconstruction and redevelopment projects, it will be important to distinguish roles by having public-led projects in areas with low profitability and private-led projects in areas with profitability.

Activation of transactions is essential for stabilizing the housing market. For this, reform of acquisition tax and capital gains tax is absolutely required. The current administration’s strengthening of real estate taxation has made it difficult for non-homeowners to purchase homes and for homeowners to move residences, and has led to so-called punitive holding tax burdens, which in turn harms tenants. Additionally, with the recent rapid rise in housing prices, official property prices have increased significantly, increasing the burden of holding taxes, so improvements are also necessary. The top priority will be to pursue or reconsider the realization of tax burdens for so-called “innocent victims” such as long-term owners of one home.

Past governments have also implemented a hot-and-cold policy of regulation and easing depending on the real estate market situation. They have announced measures in a reactive manner whenever market confusion occurred. As a fundamental measure, the structure of the housing lease market also needs to be reestablished. The dominant jeonse (long-term deposit lease) market should consider transitioning to a monthly rent market. The current jeonse system was useful in a high-interest rate era. Landlords had expectations of investment returns using the jeonse deposit, and tenants preferred it because there was no additional burden beyond the deposit. However, in a low-interest rate era, jeonse has become the target of gap speculation or gap investment, which is the fundamental cause of disruption in the real estate market. This increases speculative demand for housing and acts as a cause of rising sale prices.

In the current low-interest, low-growth era, a transition to a monthly rent?oriented housing market structure is necessary. As gap investment disappears, owning multiple homes becomes difficult. This can lead to reduced demand and downward stabilization of housing prices. For the monthly rent market transition to take root, tax support measures such as tax credits or reductions for monthly rent are also needed. On the other hand, regarding the most concerning issue of increased tenant burdens in the monthly rent market structure, the government could consider measures such as providing housing vouchers to low-income tenants to partially compensate for rent.

Since the new government’s policy paradigm is opposite to that of the current administration, policy consistency cannot be expected. In particular, as the new policy shifts toward a market-oriented direction, it must not become a runaway horse causing confusion in the housing market. In that regard, it is hoped that a roadmap announcement including a public discussion process that all citizens can understand and accept will follow. The new government must recognize that establishing a system in which the housing market operates autonomously rather than being influenced by external variables is fundamental to all real estate measures.

Jung Jae-ho, President of the Korea Real Estate Society

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