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Government`s Disoriented Real Estate Policies

Posted September. 08, 2003 23:09,   


The government is being criticized for its lack of consistency and reliability in policy implementation. Opponents say that the frequent changes in policies and sudden implementation without preparation period of new regulations only result in public resistance.

For example, the rule, which stipulates that 60% of housing units at all reconstruction apartment complexes should be small-sized, took effect on the day of its announcement. Therefore, those who had purchased the apartment houses before the announcement were given no time to sell their houses.

The Ministry of Construction and Transportation also banned the selling and buying of a reconstruction union`s membership. This was the measure that the government had described as unacceptable, citing possible violation of property rights. But after only three months, it changed course.

Also problematic is too frequent introduction of new laws. This problem has also been noted in the past but this year it has become even more serious. The number of newly adopted government measures is over 20 including 14 introduced by the Ministry of Construction and Transportation and other tax regulations drawn up by the Ministry of Economy and Finance. In other words, the government has produced a new regulation every 15 days.

Different stances taken by individual government agencies also undermine credibility of government policies.

While announcing new real estate-related measures on September 5, the Ministry of Economy and Finance and the Ministry of Construction and Transportation cited education environment as a major cause for rising real estate prices in Gangnam, south of Seoul. However the education ministry has yet to come up with countermeasures. Worse, some education ministry officials and education-related civic groups are criticizing the government for taking advantage of education as a measure to curb rising real estate prices.

Not only that, there have been number of cases in which the government has changed its policies such as the corporate tax and the VAT reduction.

Choi Dong-gun, an economics professor at Myungji University noted, "As the economy is said to be all about psychology, the credibility of government has very significant implications for the national economy. The government`s lack of reliability has much reduced its policy effects."

In a press conference, the economy minister Kim Jin-pyo said, "The reduction in VAT would be no help to boosting the economy." He added the ministry is not considering VAT cuts for cars and home appliances at all.

But just a month later, on July 3, the government announced that it would submit a bill on VAT reduction to the National Assembly. Soon the web site of the economy ministry was flooded with criticism from people who had purchased cars in the meantime.

In March, when the new government was just inaugurated, its economic team made it clear that the government would not provide any economic boost. But one or two months later, the need for a supplementary budget was raised, followed by Ministry Kim`s official announcement about setting aside a supplementary budget at the National Assembly in June.

Experts note that such a loss of credibility in government policies and missing of policy implementation timing are main causes behind the drop in economic growth rate by 1.9% year-on-year.

Kwang-Hyun Kim kkh@donga.com