Concerns Over Complex Crisis in Housing Market... 66% of Developers Say "Hard Landing Likely"

Geonsanyeon and Housing Association Seminar... "Government Must Respond Actively"

Apartment complexes in the Songpa-gu area of Seoul / Photo by Yonhap News

[Asia Economy Reporter Noh Kyung-jo] Experts in the construction and real estate industries emphasized that the government must take proactive measures to prepare for the possibility of a complex crisis where the sales, housing, and financial markets all face difficulties simultaneously.

The Korea Research Institute for Construction Industry and the Korea Housing Association held a seminar titled "Housing Market in Crisis: Diagnosis and Response" on the afternoon of the 15th at the Construction Hall in Gangnam-gu, Seoul. The seminar was organized to assess the risks of the housing market entering a recession and to explore policy responses reflecting voices from the field.

Researcher Heo Yoon-kyung from the Korea Research Institute for Construction Industry presented on the topic "Diagnosis and Policy Response of the Housing Market: Focusing on Comparisons between the Foreign Exchange Crisis and the Financial Crisis." She diagnosed the market sentiment based on a survey conducted among housing business professionals.

The survey was conducted from September 15 to October 13 among 70 construction and housing business professionals who are members of the association. Among them, 66% believed there is a high possibility of a hard landing in the housing market. Among those with over 10 years of experience, 69% shared this view.

They rated demand stimulation policies (financial and tax measures) as important, prioritizing in order: ▲easing of Loan-to-Value (LTV) and Debt Service Ratio (DSR) regulations ▲lifting of restrictions on designated adjustment areas ▲relaxation of capital gains tax surcharges on multiple homeowners ▲easing of regulations related to redevelopment projects. Among the August 16 measures, improvement of approval procedures was highlighted as urgent.

Regarding the recent economic crisis triggered by the Legoland-related real estate project financing (PF), continuous government response was demanded. Researcher Heo advised, "Although banks have strengthened soundness since the financial crisis, the proportion of riskier non-bank sectors in real estate finance has increased. Financial distress materializes with a time lag, so ongoing responses are necessary."

She also pointed out the need for active government measures concerning the decline in apartment transactions in the metropolitan area, citing the significant ripple effects on the housing market, related industries, and the national economy, as well as the hardships faced by ordinary citizens.

Researcher Heo stated, "The housing market has entered a recession phase where price declines, reduced transactions, poor sales, and expanded financial risks are intertwined. The government's recent swift response is welcome. However, the current pace of interest rate hikes is at a level difficult for the housing market to cope with, and continuous government involvement is needed to prevent the housing market from escalating into a complex crisis."

The next presentation was delivered by Deputy Researcher Lee Tae-hee of the Korea Research Institute for Construction Industry. Under the theme "Evaluation of Government Housing Supply Policies and Institutional Improvements: Focusing on Seoul’s Redevelopment Projects," Deputy Researcher Lee diagnosed, "Although the housing market is very challenging recently, demand for housing in favorable locations remains strong." He added, "The activation of redevelopment projects, which aligns with the government's policy direction to quickly supply high-quality housing where demand exists, forms the core of the current administration’s housing supply policy."

He analyzed that many redevelopment sites could proceed swiftly if the government and local authorities simply eased excessive regulations. Given the current constraints on government fiscal spending and liquidity supply due to inflation concerns, even slight relaxation of rigidity could yield significant effects.

Regarding institutional reforms such as the August 16 measures, he said, "The direction is generally positive, but some shortcomings remain." He explained, "If improvements demanded by the field, such as safety inspections, the price ceiling system, the excess profit recovery system for reconstruction, and expanded integrated reviews, are incorporated into the reforms, it could somewhat aid project activation and prompt progress." He added that further consideration is needed on whether the scope of reforms to the pre-sale price system and the excess profit recovery system is sufficient.

Deputy Researcher Lee identified three issues requiring priority institutional improvements: timing of contractor selection, construction cost verification system, and the New Town Planning (Shintong Planning). These conclusions were drawn based on surveys conducted with redevelopment associations and major contractors in Seoul, as well as in-depth interviews with 37 key field stakeholders.

He said, "It was confirmed that serious side effects such as project delays and unnecessary cost increases occur due to the gap between policy intentions and field realities. Early timing of contractor selection and a major overhaul of the construction cost verification system are necessary." He also added, "Since the New Town Planning raises concerns about excessive public contributions and unilateral implementation, measures to alleviate landowners’ concerns are needed."

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