Failing Anti-Speculation Policies

“The government’s anti-speculation policies are increasing housing prices in Gangnam.”

Despite the government’s determined efforts to stabilize housing prices in the Gangnam area of Seoul, housing prices in the area are continuously rising. Housing prices in Bundang new town and Yong-in, located in the southeastern outskirts of Seoul, have recently been skyrocketing as well.

On the other hand, housing prices in other parts of Seoul, such as the Gangbuk district, remain flat, widening the gap of housing prices between Gangnam and Gangbuk.

Since his inauguration, President Roh Moo-hyun pledged to make sure that no one makes money from real estate speculation and he will certainly deliver on this pledge no matter how challenging it will be. He came up with many measures to curb housing prices in the Gangnam area including Gangnam-gu, Seocho-gu, Songpa-gu and Gangdong-gu.

However, it turns out that the two-year of the implementation of the government’s anti-speculation policies curbed housing prices not in Gangnam area, but in other parts of the nation.

- Since 2003, the housing price increase in the four districts of Gangnam was more than 20 percent. Real housing prices in Gangbuk decreased, leading to the suspension of real estate transactions and an increase in taxes.

Experts pointed out the urgent need to stem the flow of speculative funds that are continuously stimulating the real estate market.

Park Jae-ryong, the head researcher of SERI (Samsung Economic Research Institute) said, “It is difficult for anti-speculation policies to yield desired results as long as speculative funds flow. Those funds abound in the real estate market due to low interest rates.

There is nothing new about the argument that there should be a supply of residential space that can replace Gangnam.

Kim Hyun-ah, a vice researcher of the Construction and Economy Research Institute of Korea said, “The plan to develop Pangyo new town to make it absorb the demand in Gangnam failed, which increased again the demand of those seeking high-class housing in Gangnam. As a result housing prices in Gangnam, Bundang and Yong-in are increasing. There is a need to develop residential areas that can match Gangnam.”

In addition, the demand for consistency in policies is rising.

Director Gwak Chang-seok of “Real Estate First,” a real estate consulting firm, said, “The government’s policies were used to control the economy rather than to control the supply and demand of housing units. They sometimes were used as an ‘economic stimulus’ or ‘regulatory measure,’ which caused people to expect that at the end of this administration, all the regulations will be relaxed. It is necessary to restore trust in the government’s policies.”

Jae-SeongHwang jsonhng@donga.com imsoo@donga.com