[Editorial] “Conquering Real Estate Speculation”: Easier Said Than Done

Yesterday, at the official announcement of the government’s real estate countermeasures, Deputy Prime Minister and Minister of Finance and Economy Han Duck-soo declared “an end to real estate speculation.” He stressed that the government would “eliminate the real estate bubble to normalize the market and ensure that the public’s faith in the conquest of real estate speculation takes proper root,” even saying that he would “put his job on the line” for the cause.

Looking back to 2003, when the October 29 measures were announced, then-Deputy Prime Minister of Economy Kim Jin-pyo remarked, “Everything the government can do, including the public concept of land, has been done,” going as far as to state that “any further policy-making would border on socialism.” However, the price stabilization effect wrought by those measures lasted a mere three to six months.

The gist of the “August 31 countermeasures” is to repress speculative demand through heavy taxation and increase the housing supply through new residential developments. But the simultaneous increase of both the comprehensive real estate tax and the transfer income tax takes on a punitive character. It also raises further questions about whether it is justified to hurl a “high-precision tax missile” at residents who have come to own high-price apartments as a natural result of living in the Gangnam area for a long time, as if they were in league with the speculators.

The government acknowledged that the main causes behind the real estate price fluctuations were an excess of funds in the market and the development of the Multifunctional Administrative City. It is problematic, then, that it has created a set of countermeasures that pit the rich against the poor, and Gangnam residents against non-Gangnam residents, thus explicitly reflecting the idea of taking from the haves and distributing the riches among the have-nots. The possible repercussions of such a policy, which smacks strongly of political populism, are no light matter.

In terms of supply, the countermeasures expand on the government’s initial plan by alleviating restrictions on urban development and planning a new town accommodating 50,000 households on a two-million-pyeong tract of land owned by the government in Geoyeo-dong, Songpa-gu, Seoul. But since there’s a necessary and substantial time difference between current housing demand and future new town construction, such plans must be accompanied by measures for managing demand and suppressing speculation. Also, as seen in the “Pangyo Lotto” incident, ignoring the high demand for large and midsized homes may end up boosting the speculative demand for existing large and midsized units in Gangnam and other areas. Careful and scrupulous complementary measures are called for.

As Deputy Prime Minister Han admitted, the government’s real estate policies in the past lagged behind the market due to a lack of public faith. The biggest problem is that the government is myopically focused on resolving real estate issues at the expense of fostering investment and creating a vital economy. The government must stop blaming speculators and concentrate more effort on finding a way to channel the floating capital that created the real estate crisis into the production sector.