[Editorial] Incorrect Real Estate Policy

The Roh administration will unveil another real estate policy package tomorrow that will aim to recapture up to 50 percent of the capital gains from the reconstruction of apartments in southern area of Seoul (Gangnam) in charge of development, and to facilitate the development of the northern area of the city.

This is the fourth major countermeasure against real estate speculation and the 35th of its kind, including minor measures, in the 37 months the Roh Moo Hyun administration has been in office.

In addition to policies to lower reconstruction profitability, the package also includes measures to strengthen safety audit procedures. These measures will make it harder for developers to get permission to do reconstruction work while maintaining their rental and small and medium-sized apartment construction obligations.

But given that the demand for larger apartments in Gangnam has already increased largely due to better educational conditions in the area, it is questionable whether this new policy to curb demand will be effective. In some areas, the so-called “balloon effect” has been observed as frustrated demand for larger apartments in Gangnam shifts attention to other areas.

In addition, there are some critics who question the constitutionality of the development measures. They say that because reconstruction is not to change the type or use of the original building but to expand the size, it is not eligible for charge of development. A suit against the regulation, which mandates developers to build rental housing when reconstructing, has already been filed with the Constitutional Court. The frequent legal battles against the government policies are because the government has recklessly gushed out regulations which might violate the property right of the citizens.

Recently, a high official at the Ministry of Finance and Economy said, “80% of those who have bought houses in Gangnam since the introduction of August 31st comprehensive real estate policy last year were confirmed to be end users.” In other words, even the government admitted that its perception that the real estate market is swarmed with speculators was wrong. Then, its measures to stabilize the real estate market should have been changed into ones that are based on the market principle such as expanding the supply of luxury apartments to meet the demand for them. Nonetheless, President Roh shows no signs of change and sticks to the old measures of imposing heavy punitive taxes and strict regulations, saying, “do not dismiss the August 31st measures as nothing.” Is that because he is surrounded by aids who received medals for that measures?

Why does the President not listen even when the voices criticizing the current administration’s ineffective and market-distorting real estate policy are heard from the inside? If the administration is not willing to admit its policy failure and adhere to its “code policy” to please those who are jealous of the rich who earn fortunes in the real estate market, it will never be able to see the market stabilized and revived.