Government Set to Increase Supply of Housing

The government apparently has decided that it should not allow real estate prices to jump any more in the Gangnam area in Seoul and Bundang-gu, Seongnam and Yong-in in Gyeonggi Province.

The government put all possible measures on the table, including short-term curbing measures on demand and mid- and long-term measures of increasing supply.

However, no plausible measure is in sight. Reducing demand has proved to be ineffective, and expanding supply takes years.

Yet, because the president came to the fore and held an emergency meeting to deal with the current property frenzy, a solution is expected to come out.

Will the Government Propose an Effective Measure to Increase Supply?-

The government has agreed that supplying more housing is one of the most effective ways to curb skyrocketing real estate prices.

On the table are plans to construct of new towns as big as Pangyo New Town, to quicken the development of new town construction in northern Seoul, and to build mid- and large sized rental apartments with the help of private funds.

“The core of the meetings presided over by the prime minister on June 13 and by the president on June 17 will be ways to increase the housing supply,” said a senior official of the Ministry of Construction and Transportation.

However, an increased supply of housing takes a long period of time, which concerns the government.

Since it takes three to four years from developing construction plans to supplying apartments, a new town will be completed in 2009 if the government chooses the site for construction later this year.

There is another challenge ahead in selecting a site for a new town. Seoul Airport, which was proposed as a new town with site similar in size as Pangyo New Town, is being opposed by the Ministry of National Defense for security reasons, and the Ministry of Environment and environmental groups are firmly against losing a green belt zone to developers near Gwacheon, Gyeonggi Province.

Real estate experts suggest deregulation of rebuilding, such as limits on gross floor area ratio and maximum stories, as ways which have immediate effects, but the government is reluctant to accept these suggestions.

“Easing the regulations on rebuilding in Gangnam-gu,” said an official of the Ministry of Finance and Economics, “may increase supply of residential buildings in the long term, while fuelling real estate prices in the short term. Amid hostile public opinion toward the overheating market, people will not tolerate even higher housing prices.”

Short Term Restraining Measures on Demand Will Go Hand-In-Hand-

The government is considering measures to reduce demand for residential housing.

The major implementation steps will be a tax inspection in areas with skyrocketing housing prices by the National Tax Service and raising government announced prices to impose higher taxes in buying and selling real estate.

In addition, the Financial Supervisory Service will scrutinize whether financial businesses are keeping their LTV limits.

The government is also considering lowering the current 40 to 60 percent LTV fixed on house prices.

Some raised the possibility of adopting a licensing system in property sales, which was a part of the government’s plans to dampen speculators on October 29, 2003, but the Ministry of Construction and Transportation said “The measure is not an easy one to decide because it is sensitive and has far-reaching implications.”

Experts called for a solution based on the principle, saying increasing the supply might take time, but would be one of the answers.

Goh Cheol, president of the Korea Housing Institute, pointed out at an expert meeting presided by Han duk-soo, Vice Prime Minister and Minister of Finance and Economics on June 10, that “the government’s policy restricting demand is partly to blame for property speculation,” adding, “To stabilize the property market, the government should ease the green belt zone near Gangnam area to increase the housing supply and deregulate the restrictions involving rebuilding residential lots as a mid- and long-term measure,” added Goh.