[6·21 Real Estate Measures] Government: "Even with Reform of the Price Ceiling System, Prices Remain Below Market Value"

As the system related to the price ceiling on housing sales is being revised to reflect essential costs incurred in housing maintenance projects in the sale price and to include the increase in material costs in construction costs, the sale price is expected to rise by about 1.5% to a maximum of 4%.

The sale price review process, which had been criticized for being opaque, will become more transparent. Until now, when calculating land costs for private residential sites, the appraisal results were verified confidentially by the Korea Real Estate Board, but there were criticisms that the process lacked participation from the appraisers themselves or external opinion gathering, indicating a need for improvement.

Accordingly, to enhance the objectivity and fairness of land cost verification and to enable early completion of evaluations, a Land Cost Verification Committee will be established. In addition to the Real Estate Board, the relevant appraisers and experts will directly participate in the verification process, and appraisal guidelines and the Real Estate Board’s verification standards will be further specified.

On the 21st, the Ministry of Land, Infrastructure and Transport announced that it discussed and finalized the “Rationalization Plan for the Operation of the Sale Price System” containing these details at the 1st Real Estate-Related Ministers’ Meeting. The “Price Ceiling on Housing Sales” and the “High Sale Price Review System” have been praised for contributing to the supply of affordable housing, but there have been criticisms that excessive price controls reduce project profitability and suppress supply. The government plans to resolve market uncertainties and promote housing supply through the rationalization plan for the operation of the sale price system.

Below is a Q&A with the Ministry of Land, Infrastructure and Transport regarding the rationalization plan for the operation of the sale price system.

-- What is the purpose of this system improvement?

▶ This measure focuses on rationalizing the operation of the sale price-related system by properly reflecting essential costs that occur uniquely in maintenance projects but have not been reflected so far, causing supply difficulties, and by linking the recent rise in material costs more closely to construction costs.

With the system improvement, as the supply base in urban areas such as maintenance projects is secured, the supply of housing cheaper than market prices will increase, expanding opportunities for homeownership for low-income households without homes and acting as a factor for market stabilization.

-- If the increase in material costs is reflected in construction costs, won’t the housing burden on low-income households increase?

▶ That is not the case. This system improvement strengthens the linkage between raw material prices and the standard construction cost. As the recent increase in material costs is reflected more promptly in construction costs, housing supply is expected to become smoother.

Even after the system improvement, housing subject to the price ceiling will remain cheaper than market prices, so the increase in housing burden for low-income households without homes will be minimal. Rather, as housing supply increases, opportunities for subscription by low-income households without homes are expected to expand.

Furthermore, as the linkage between material costs and construction costs is strengthened, if material costs drop significantly in the future due to stabilized supply, construction costs will be adjusted smoothly, contributing to housing stability for low-income households.

-- What is the impact on sale prices due to this system improvement?

▶ The impact on sale prices in the future will be temporary and limited. This system improvement mainly applies to maintenance projects. Public land projects supplying housing at low prices in new towns are not significantly related to this measure, so the impact on sale prices is expected to be minimal.

Also, adjustments to construction costs due to rising material costs will normalize when material supply stabilizes, so the impact on sale prices is temporary. The system improvement is expected to promote smooth supply in urban areas, contributing to market stabilization and housing stability for low-income households.

-- What is the purpose of establishing the Real Estate Board’s Land Cost Verification Committee?

▶ Until now, when calculating land costs for private residential sites, the Korea Real Estate Board internally reviewed the appropriateness of appraisal results conducted by project operators. However, there were criticisms that the verification was subjective due to the lack of external opinion gathering procedures.

Accordingly, a Land Cost Verification Committee has been established within the Real Estate Board, and opinions from the relevant appraisers and external experts will be collected to enhance the objectivity and fairness of land cost verification. However, even with the new committee, the Real Estate Board’s appropriateness review will be completed within the current maximum period of 20 days.

-- Are there plans for additional system improvements such as the price ceiling on housing sales in the future?

▶ During the preparation of this system improvement plan, sufficient opinions were gathered from professional research institutions, related industries, and associations in the field. Among the difficulties raised in the field, those reasonably applicable have been reflected as much as possible this time. Considering the need to prevent unnecessary delays in sales in the future, no additional improvements are planned.

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