The South Korean government is sending out inconsistent messages about its scheme to cap the presale prices of newly built apartments. “There is a possibility of shrinking supplies as far as the construction economy is concerned,” said Finance Minister and Deputy Prime Minister Hong Nam-ki on Wednesday. On the same day, Land Minister Kim Hyun-mi said it is wrong to peg the price cap scheme with reduction of supply. It is true that the finance minister has responsibility to take a look at the bigger picture while the land minister is mainly tasked with stabilizing housing prices, yet the latest episode shows that the two ministries have such a drastically different point of view about the same issue.
Such discrepancies have been detected since the Land Ministry leaked the news on expanding the scope of the price cap policy to private housing lots in July. The Land Ministry announced that the scheme will be implemented in early October after advance legislation notice, and Deputy Prime Minister Hong rebutted it, saying the time and the location will be decided by checking the current economic conditions and the trend of property market. Their cacophony fueled confusion and anxiety in market. In August, an announcement was made to implement a price cap on rebuilding and redevelopment projects, stoking controversy over retroactive legislation. Such a stance has grown rather dovish with a change of plan on Tuesday, delaying the application by six months for the sites of rebuilding or redevelopment that have received or filed for certification of disposal plan in advance.
Even if the price cap policy kicks off in late October, the housing complexes distributing their lots until April next year will not be subjected to the scheme. The government expects that 68,000 households of 61 apartment complexes in Seoul will be steered clear of it. However, its effectiveness is in question as the process of moving and demolition takes more than a year in many cases. If anything, those who have recently filed for a disposal plan won’t be able to handle the pressure to finish distribution in six months and will likely face even more confusion. Many people say that policy uncertainty is the biggest issue in property market, and I wonder if the government has heard of it.