[Steep Mountains Real Estate] "Timing of Interest Rate Normalization Uncertain, Preemptive Regulation Easing Needed"

"Expand Housing Supply After Deregulation... Support for Public Projects Too"
Ministry of Land, Infrastructure and Transport "Considering Additional Deregulation Areas and Other Measures"

On the 2nd, panelists are discussing at the '2023 Construction and Real Estate Market Outlook Seminar' held at the Construction Hall in Nonhyeon-dong, Gangnam-gu, Seoul. / Photo by Kyungjo Noh felizkj@

[Asia Economy Reporter Noh Kyung-jo] As concerns over the deterioration of the real estate market grow, experts are urging the government to make efforts to stabilize the financial market, strategically manage fiscal policies, and boldly ease regulations to ensure a soft landing for the housing market. This appears to stem from the perception that the government's recent announcement of real estate regulation easing measures at the Emergency Economic and Livelihood Meeting is still insufficient.

With the high interest rate trend expected to continue until next year and the timing of normalization (exit strategy) unknown, there are calls for swift responses. Along with expanding the Social Overhead Capital (SOC) budget, institutional preparations for private purchase rental businesses and Corporate Restructuring REITs (CR REITs) were also mentioned.

At the ‘2023 Construction and Real Estate Market Outlook Seminar’ held by the Korea Research Institute for Construction Industry on the 2nd, Park Cheol-han, a research fellow at the institute, said, "The refusal to extend loans in the Project Financing (PF) market is a typical liquidity crisis, with an increasing number of construction companies struggling to secure construction funds due to blocked loans, and the risk of bankruptcy due to joint guarantees is also growing." He added, "The government's proactive crisis response and securing domestic and international market trust will be key to stable growth."

He further stated, "In the first half of next year, it is necessary to increase orders mainly for small-scale construction projects to avoid stimulating inflationary pressures, and in the second half, to advance the commencement of large-scale projects that have been delayed so far to maximize the economic stimulus effect." He added, "To normalize market functions and ensure a soft landing for the housing market, regulations should be eased first, followed by an expansion of housing supply."

Kim Yeol-mae, a researcher at NH Investment & Securities, also agreed with the idea of easing regulations first, saying, "Objective scenario analysis and responses from various perspectives are necessary."

Researcher Kim said, "At the beginning of the year, no institution predicted the Bank of Korea's base rate would rise to 3.00%. The U.S. is expected to raise it up to a final 5.00%, and this is gauged by changes in bond prices. We are experiencing a market where long-term bond prices fluctuate drastically within a day." He emphasized, "The volatility is so great that we cannot be sure if next year will be the peak. At times like this, scenario analysis without emotions and cash flow management are important, and a lukewarm response is not acceptable."

In fact, the U.S. Federal Reserve (Fed) implemented a giant step (a 0.75%p increase in the base rate) on the 2nd (local time), marking the fourth consecutive hike. With the U.S. base rate upper limit rising to 4.00%, the Bank of Korea is also likely to raise rates at this month's Monetary Policy Committee meeting.

Voices calling for an expansion of the SOC budget in response to government measures also emerged. While the focus was on overcoming the COVID-19 pandemic over the past three years, now there is a need to consider how to prevent economic stagnation, and expanding SOC projects is seen as one possible measure.

Oh Beom-gyun, head of policy support at Hyundai Construction, said, "Since everyone expects the private sector to face difficulties next year, the public sector must support it." He added, "The government should expand the SOC budget and apply appropriate construction costs to create an environment where companies can work comfortably."

Earlier, the government finalized next year's SOC budget at 25.1 trillion won, a 10% decrease from this year's 28 trillion won. Oh said, "With increasing uncertainties in the private construction sector such as funding shortages, if SOC also faces difficulties, small and medium construction companies relying on fiscal projects may suffer significant damage." He emphasized, "An expansionary stance is necessary for the survival of the construction industry and economic stimulus."

The Korea Development Institute (KDI) viewed the timing of the exit strategy as a turning point that will determine the direction of construction investment and housing sales and rental prices. KDI researcher Oh Ji-yoon said, "The current interest rate hikes aim to stabilize inflation, but the key is when signals will appear and the trend will change." She cautioned, "Since sales and rental prices have been moving in tandem for about two years, careful attention is needed."

From the government side, the focus is on understanding the current situation. At the same time, concerns were expressed about excessive panic. Park Jeong-ran, director of construction policy at the Ministry of Land, Infrastructure and Transport, said, "As seen in the Legoland incident, excessive panic causes market stagnation." She explained, "Statistics are released later than the actual occurrence, so instead of relying on them, we are focusing on ‘monitoring’ for real-time situation awareness."

She added, "Recently, guarantees for apartment interim payment loans have been expanded, and additional deregulation of regulated areas is also under review." She further explained, "Since it is unknown when this uncertain period will end, various response measures will be devised for each situation."

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