Designation of Speculation-prone Zones Has Little Effect to Curb Housing Prices

The government`s measures to stabilize housing prices were found to have little effect. In addition, tax audits conducted to curb rising prices of new apartments have also failed to serve the purpose.

According to a report by the Ministry of Construction and Transportation (MCT) on Sep. 21, among 41 districts that the government designated as speculative-prone zones, only 4-5 districts saw falling housing prices while the rest of them saw rising housing prices. In those areas, capital gains taxes are levied based on the real transaction.

In particular, housing prices index of Gangnam in southern Seoul soared 10.6 percent to 105.5 as of the end of August from 95.3 at the end of April when the district was designated as a speculation-prone zone.

There were no districts, among 14 zones in Seoul, where housing prices fell, as housing prices index of Gangdong-gu and Songpa-gu gained 7.4 percent and 4.0 percent, respectively, by the end of August.

Housing prices index of Hwasung, Gyeonggi Privince rose 6.7 percent since it was designated as a speculation-prone zone in May 29, Jungwon-gu in Seongnam 2.3 percent since June 14, and Yongin 1.3 percent since July 19.

On the other hand, housing prices index of Chuncheon, Gandwon Province, lost 1.4 percent since the designation of speculation-prone zone along with Seo-gu in Incheon, Gunpo, and Ilsan-gu in Goyang.

The designation of speculation-overheated zones, in which the transaction of the right to buy new apartments are banned and the ways of sell them are restricted, has little effects.

The entire Seoul has been designated as a speculation-overheated zone in Sep. 6 last year but housing prices steadily increased 6 percent by the end of August this year.

Incheon, Gyeonggi Province, Daejeon, Cheongju and Cheongwon in North Chungcheong Province, and Cheonan and Asan in South Chungcheong Province, were designated as speculation-prone zones in June 7 this year. Since then, housing prices index of these zones jumped by 0.6-4.3 percent.

The hike in housing prices in those areas even after the designation of speculation-prone or speculation overheated zones can be attributed to the fact that people bought houses despite the increased amount of money as much as capital gains tax as housing supply lagged demand.

Meanwhile, the skyrocketing prices of new apartments continued despite the government policy to control them.

The average price of newly provided apartments was 9,784,000 won per pyeong in Seoul during the first half of this year, up 18.9 percent from 8,229,000 won last year, the MCT said.

In particular, Daegu saw a record 20.1 percent hike since the move to allow the prices of newly provided apartment units to be decided autonomously, from 4,040,000 won last year to 4,853,000 won in the first half of this year.

Jae-Seong Hwang jsonhng@donga.com