[Editorial] Government’s Real Estate Policy Angering Some

As its announcement of building new towns in Geomdan and Paul is unlikely to stabilize the real estate market, the government said yesterday that it would lower the sales price of the houses in those areas by increasing floor-area-ratio and by financing the cost of infrastructure development in the new cities from the government budget. This new policy indicates that the government has made a 180-degree turn in just three months. This follows the witnessing of its policy of setting the first sale prices of houses very high in other new towns such Pangyo and Eunpyeong New Town area giving rise to negative side effects of raising other real estate prices in surrounding areas.

Since the inauguration of the Roh administration, measures to stabilize the real estate market have been introduced approximately 30 times, which led to harsh rhetoric and heavier taxes, but all such polices wound up incompatible with market principles and stopgap measures turned out to have failed every time. Those “amateur” persons as authorities, who had led new policies and were so confident, saying, “ After being hit by significantly heavier taxes, house prices in the southern Seoul area cannot help but go down by 20 to 30 percent,” are now busy making excuses for the failure.

The advisor to the president on economic policy, Jeong Moon-soo, is now saying, “I’m not a real-estate expert,” and Kim Soo-hyun, presidential secretary, is blaming the social environment, though acknowledging the policy failure. The chairman of the Presidential Commission on Policy, Kim Byung-joon, who led 8.31 special measures on real estate market last year as the Chief Secretary for President for National Policy, is now saying, “Discuss this issue again in 2010.” After making average working citizens angry by prompting rents to soar and badgering the middle income citizens with a tax bomb, they now seem to pass this issue on to the next administration.

Even during the discussion yesterday, the issue of imposing heavier taxes and core regulation on reconstruction and redevelopment were left intact. In this situation, it is highly doubtful that additional measures discussed yesterday will have any effect. It would be unreasonable to act as if the 8.31 special measures on the real estate market is the right answer to the problem. That is especially so, given that one of the policymakers already admitted its failure. Currently, even the people who own only one house cannot sell their house even if they want to because of the high transfer tax. Yet, if there are no houses put up for sale, the price of houses will only go up. It is necessary to ease the regulation on the reconstruction and redevelopment of old, obsolete houses and raise the floor-area-ratio in order to provide more houses in the southern Seoul region. The government should also announce soon its plans for developing new towns, which could be used as alternative living places to southern Seoul.

The incumbent administration has made its worst failure with its real estate policy than any other governments in Korean history. The reason for such a big failure is that the current government has threatened the market with ideological policies such as delivering a tax bomb. The only solution for the government is, though belatedly, to convert its policy to market-friendly policies such as easing regulations and increasing supply.