President-Elect’s Promises Could Drive Real Estate Prices Up, Say Experts

President-elect Lee Myung-bak’s various real-estate related promises, including promises to reduce the comprehensive real estate tax, to impose more lenient redevelopment and reconstruction regulations, and to begin the Korean Peninsula Grand Canal project, will likely cause real estate prices to climb during early days of the new government, according to a report released yesterday.

The same report also predicted that Lee’s promise of 7% economic growth could also come with the side effects of inflation or current account deficits, and that the forecast of creating 3 million more jobs is unlikely to become reality.

The Korean Economic Association made these observations in a report released on December 24 for the 2007 Economic Policy Forum titled ‘A Reality Check on the President-elect’s Economic Promises And Suggestions’ due to be held in the Korea Chamber of Commerce and Industry on December 26.

Heo Jae-wan, a professor at Chung Ang University who examined Lee’s real estate and local development related promises, said, “The real estate market has already attuned itself to Lee’s promises of easing floor space index regulations for redevelopment and tax cuts. Thus, it is always a possibility that real estate prices could steeply rise during the early period of the new government. If the Grand Canal project, along with other development-related promises, materializes, real estate prices nationwide will likely be significantly affected just as when the current administration’s plan for an innovative entrepreneurial city did,” he pointed out.

Heo warned, “The new government’s plan to relax regulations needs to be initiated strategically, factoring in market conditions. If real estate issues are mismanaged, that would leave little room for the government.”

Scholars questioned the feasibility of Lee’s promises that he will make the economy grow at 7% annually and create 3 million new jobs.

Park Won-am, a professor at Hongik University, said, “7% economic growth by spurring investment with the lure of eased regulations and tax cuts could be, in terms of macroeconomics, followed by price rises, current account deficits, and deficit financing. Inflation would, in turn, hamper the 30% reduction in principal living costs, Lee’s another promise, from becoming a reality.”

Choi Kang-shik, a professor at Yonsei University, also said, “Employment rate growth spurred by technological innovation has been slowing down. Lee’s pledge to create 3 million new jobs and rein in youth unemployment rates to 3-4% does not seem rooted in reality.”

Choi added, “The president-elect said, among his other education-related promises, that he will increase the number of English teachers who can teach their pupils in English. Yet he failed to factor in time for training these teachers and consider the effective value of the program.”

Lee In-shil, a professor at Sogang University, pointed out, “The promised tax cut to support basic taxpayer living expenses is very much wage earner-oriented, which puts those running their own businesses in an unfair position.” “Additionally, oil tax reduction is a populist tax policy that will not bring any substantial difference to the people, but which will cause a substantial loss of tax revenues,” Lee criticized.

The Korean Economic Association said, “Initially, the forum was designed to examine presidential candidates’ promises. But as various political and social issues that happened during the presidential campaign buried the ongoing policy debate, the plan did not come into being.” “The forum is designed to help the new administration conduct state affairs and suggest constructive alternatives by examining the president-elect’s promises in an objective and critical manner,” the association said.

Apart from the scholars on the association, some Grand National Party members, including Lee Han-gu, Ahn Myeong-ok, Kim Ae-shil and Lee Ju-ho, will attend the forum on December 26.

jarrett@donga.com