End Anti-Speculation Measures

The government’s real estate regulations have fluctuated ever since the Kim Dae-jung administration, easing when the economy is in recession and tightening when the market heats up.

Apartment prices in Seoul have continuously dropped since the Asian finance crisis in 1998. They dropped 4.7 percent that April, compared to a month earlier. In the same year, the government announced real estate deregulation measures, including a temporary tax cut for acquisition and registration in May, and the liberalization of pre-sell prices for apartment units smaller than 25.7 pyeong in floor area in the metropolitan area in December.

As a result, in January 1999, apartment unit prices increased 3.1 percent.

Soon afterwards, apartment prices stabilized and the government came up with other measures, including a capital gains tax exemption for houses in non-metropolitan areas on a temporary basis until the end of 2001 that was announced in August 2000, and financial support for first-time home buyers announced in May 2001.

The government also offered a series of property market incentives that led to an increase in apartment prices. They climbed 6.5 percent on average in January 2002, which shifted the government’s real estate policies from deregulation to regulation.

In January 2002, the government revealed a tax inspection plan for the resale of pre-selling rights. But the rate of monthly apartment price increases did not drop under three percent until March of that year. The government then designated Seoul as a real estate speculation zone and came up with tightened safety inspection measures on apartment units scheduled for construction in August of the same year.

A series of restriction measures resulted in a drop in apartment price at the end of that year.

No Control Over Prices-

The Roh Moo-hyun administration has implemented real estate regulation measures since its inception because of the upward tendency of property prices after the real estate market regulations announced in 2002 started to lose their effect.

In April 2003, when apartment prices rose 1.9 percent, the government strengthened regulations on the resale of pre-selling rights for apartment lots in areas where the real estate market was overheated in May, and prohibited the resale of pre-selling rights for commercial-residential buildings in those areas.

After stabilizing, apartment prices went up 2.5 percent in September 2003, and the government unveiled its first batch of anti-real estate speculation measures on October 29.

With anti-speculation measures that imposed heavier capital gains taxes on those who own three houses or more, apartment prices froze for a while. The average apartment price in Seoul dropped from June 2004 to January 2005.

Behind the downturn was the prediction that President Roh’s reform measures would pick up steam with the victory of the ruling Uri Party in the April 2004 general elections, according to experts.

But in November, the government removed some areas in Seongdong-gu, Songpa-gu, and Gangnam-gu, from its list of areas where people were required to report housing transactions.

After an apartment price rally in February 2005, prices showed a gradual upward movement with a 2.2 percent June increase. On top of this, the government came up with another set of anti-real estate speculation measures on August 31, after it tightened regulations on apartment reconstruction that it announced in April.

Apartment Price Still Rising-

With the comprehensive anti-speculation measures, apartment prices stabilized and even fell in October 2005, the first fall nine months.

When real estate measures to curb speculation were delayed, expectations were high that real estate regulations would be eased, leading to an increase in apartment prices starting December last year. Factors like the legalization of balcony remodeling and the revival of financial support for first-time homebuyers were also expected to drive prices higher.

Apartment prices in Gangnam-gu, Seoul increased 2.2 percent in January this year, and prices in other areas have turned around to the level before the government’s 8•31 anti-speculation measure.

The government plans to unveil new reconstruction regulations by March in the belief that apartment with reconstruction projects are the epicenter of the housing price hike.

Experts predict that if the government’s measures in March are half-hearted, they will only build up investor tolerance against government’s real estate regulation.

Seung-Heon Lee ddr@donga.com