Government Housing Price Cut In Works

The government is planning to decrease housing prices by as much as 30 percent by raising the gross floor area ratios (the ratio of the total area of a building to its floor area) of new apartments being built on public land, including the new towns.

It will also ask banks to implement stricter mortgage loan guidelines starting early next week and advance the pre-sale periods of new towns in Songpa, Seoul and Geomdan, Incheon by six to 12 months.

The decisions were made in a ministerial-level meeting presided over by President Roh Moo-hyun in Cheong Wa Dae on November 9, and will be formally announced after a meeting between the government and the ruling party next week.

Deputy Prime Minister and Finance and Economy Minister Kwon O-kyu said in a briefing in the Gwacheon Government Complex after the meeting, “To lower prices of new apartments in the new towns by about 20-30 percent, builders will be allowed to construct more houses on the limited land. For the price decrease, the government will subsidize some surrounding transportation facilities.”

He continued, “The government will also require lenders to apply a stricter debt-to-income ceiling and loan-to-value ratio to home mortgage applicants. The measures will be implemented starting at the time of their announcement early next week.”

In addition, the government plans to shorten total construction times--usually three to four years from the designation of construction sites to presales--by 6-12 months by simplifying the building process of new town housing.

The new towns in Songpa and Geomdan are expected to open for presales between late 2008 and early 2009.

Meanwhile, the government will watch areas where housing prices are soaring to curb property speculation, and investigate speculators. After the announcement, many real estate agencies in Dogok-dong and Daechi-dong in southern Seoul closed their doors in the afternoon.

But quite a few market watchers are skeptical of the government measures, making the government itself unsure of whether the plans can stabilize skyrocketing housing prices.

sanjuck@donga.com ddr@donga.com