[21st General Election] Ruling and Opposition Parties' 'Real Estate Pledges' Placed on the Election Judgment Stand

On the 13th, two days before the general election, the National Assembly Secretariat is unveiling the badges for the 21st National Assembly members. Photo by Dongju Yoon doso7@

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[Asia Economy Reporter Moon Jiwon] As the 21st National Assembly election began on the 15th, the flow of the real estate market is also expected to change depending on the election results. Since this election is not a presidential election, government policies cannot suddenly change drastically, but some sensitive policies such as comprehensive real estate tax and reconstruction regulations may be somewhat affected depending on which party wins.

In fact, ahead of this general election, not only the Democratic Party of Korea and the United Future Party but also minor parties such as the Justice Party and the Minsheng Party poured out numerous real estate pledges to capture voters' support. The Democratic Party emphasized expanding supply for actual demanders, such as supplying 100,000 homes for youth and newlyweds, while the United Future Party focused on attacking existing government policies, including easing reconstruction and redevelopment regulations and reconsidering the 3rd new town projects.

Therefore, if the ruling party wins the general election, the 'housing price stabilization' policy promoted by the Moon Jae-in administration is expected to accelerate further. The Seoul housing prices, which have recently stalled due to the economic recession caused by the novel coronavirus disease (COVID-19), are also less likely to rebound. On the other hand, if the opposition party becomes the majority, deregulation efforts will inevitably gain momentum. In particular, the issue of easing the comprehensive real estate tax is expected to be highlighted ahead of the tax imposition standard date (June 1).

Candidate Lee Nak-yeon of the Democratic Party, running for the 21st National Assembly election in Jongno, Seoul, is campaigning in support of candidate Park Sung-jun of Jung-gu and Seongdong-eun in front of Majanggyo, Jongno 5-ga, Seoul on the 14th. Photo by Kim Hyun-min kimhyun81@

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◆Supply of 100,000 homes... Democratic Party of Korea expands 'housing welfare' = The core real estate pledge the Democratic Party put forward in this general election is to expand supply. They promised to supply 100,000 homes for youth and newlyweds. This includes 50,000 homes for youth and newlyweds in the currently promoted 3rd new towns, 40,000 homes in old downtown areas of regional hub cities, and 10,000 homes on Korail sites and national lands such as Yongsan in Seoul.

Additionally, they announced plans to refine and promote the 'shared profit mortgage,' one of the policies supporting homebuyers with low income, exclusively for newlyweds and youth. The shared profit mortgage is a housing mortgage loan product where low-income people borrow at low interest rates but share the capital city fund and price gains. The Democratic Party plans to introduce a new shared profit mortgage with a loan interest rate of 1.3%, which is 0.2 percentage points lower than the existing product's 1.5% annual rate. Along with this, they plan to increase the loan limit (from 200 million KRW to 300 million KRW) and the repayment period (from 20 years to 30 years).

However, since the shared profit mortgage had only 12 cases (1.8 billion KRW) of support last year, effectively losing its function, there are criticisms that its effect will not be significant. This product was popular at its introduction in 2014, with 4,698 cases (644.1 billion KRW) sold, but the performance has been steadily declining since then. This is because, in a situation where housing prices have risen sharply and huge capital gains can be enjoyed, demanders did not find the shared profit mortgage attractive as they had to share a significant portion of the gains.

Besides this, the Democratic Party also pledged to introduce the right to request renewal of housing lease contracts and to allow deposit and rent increases within 5% upon contract renewal. They also pledged to provide 1 million public housing units for youth and newlyweds by 2022. Most of these policies are similar to those already announced by the Ministry of Land, Infrastructure and Transport, but it is analyzed that focusing on the homeless and the 20s and 30s age groups as key pledges could attract votes.

Future United Party's Seoul Jongno candidate Hwang Kyo-ahn appeals for support from citizens in front of Nakwon Arcade, Jongno-gu, Seoul on the 13th. Photo by Moon Honam munonam@

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◆United Future Party focuses on deregulation... 'Comprehensive Real Estate Tax' on alert = The United Future Party promised to block the major real estate policies of the Moon Jae-in administration. A representative pledge is the full reconsideration of the 3rd new town construction, which is considered a core government policy. The main point is that even if the 3rd new towns are built, it will be difficult to control housing prices in Seoul, and indiscriminate development could only increase 'ghost towns.'

This seems aimed at capturing the votes of residents in Goyang and Namyangju cities in Gyeonggi Province, who oppose the 3rd new towns. These are mostly areas where concerns about housing price declines due to the 3rd new towns have been raised. However, since metropolitan area express trains (GTX) and land compensation are already underway, there are criticisms that the United Future Party's 'full reconsideration' has low feasibility.

The United Future Party also pledged to ease redevelopment and reconstruction regulations for old apartment complexes in downtown Seoul and 1st new towns and to abolish the price ceiling system for private land sales. This directly opposes the Moon Jae-in administration, which has been passive about reconstruction projects. The party plans to increase new housing supply and strengthen the self-sufficiency functions of old new towns through this, but there are concerns that this is unlikely to be realized and could encourage speculation.

The United Future Party promised to reduce the comprehensive real estate tax burden by adjusting the high-priced housing standard from market price of 900 million KRW or more to official land price of 1.2 billion KRW or more. They also pledged to raise the comprehensive real estate tax exemption amount from 600 million KRW to 900 million KRW (for one household one house, from 900 million KRW to 1.2 billion KRW) and to abolish the capital gains tax heavy taxation on multi-homeowners in designated adjustment areas. They also pledged to increase the lottery system proportion in housing subscription to 50%, giving more opportunities to young people with low subscription scores.

◆Confused real estate market... Where to after the general election? = However, regardless of the election results, many analyses suggest that housing prices in Seoul and the metropolitan area will maintain a downward trend this year. Even if the opposition party performs well in the general election, the government is unlikely to immediately introduce policies to revitalize the real estate market. Even if various pledges made in this general election are implemented, it will inevitably take considerable time to push them forward.

The ongoing economic recession caused by COVID-19 is also a problem. According to a survey by the Korea Real Estate Board, Seoul housing prices have fallen for two consecutive weeks recently. This is due to a flood of urgent sales in reconstruction-promoted complexes in Gangnam area, but the decline in major northern districts such as Mapo and Yongsan is increasing, and the rise in areas like Nowon and Dobong is slowing, creating an overall sluggish atmosphere.

There are also many indicators predicting a bleak future, such as the nationwide Housing Business Survey Index (HBSI) by the Housing Industry Research Institute, which recorded 42.1 this month, the lowest since the survey began in December 2013. A real estate industry expert said, "Housing prices may 'briefly' rise soon depending on the election results, but it is difficult for it to continue in the long term," and analyzed, "If the COVID-19 situation calms down quickly, there is room for a gradual rebound from next year."

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