Tips for Buyers Planning to Own Houses

○ Apartments to Be Reconstructed: Long-term Ownership

Lim Dal-ho, CEO of Hyundo Consulting, projected that if reconstruction business halts for a long time, it is inevitable for the house prices to rise. “In the long run, the government will take a step forward to galvanize the reconstruction,” said Lim. If a house owner intends to hold the house for a long time, it is “OK” to buy an apartment unit put up for sale subjected to reconstruction.

The presidential transition committee recently promised to takeover the proceeds from the reconstruction and to maintain the mandatory ratio of small apartment units to larger ones. The presidential transition committee decided to rein in the unstable housing market arising out of the deregulation initiatives prior to the general election.

The concerns, however, are premature. The reconstruction in Gangnam area in Seoul has frozen prior to the recent announcement. It is impossible to reconstruct Hyundai apartments in Apgujeong if the small unit ratio is preserved. Most of the house owners have to move into smaller apartment after the reconstruction.

The conditions for Jugong apartments in Gaepo-dong are not different. If the floor space index is not extended, about 80 percent of the newly constructed apartments will be sized less than 60 square meters, equivalent to 24 pyeong. Furthermore, reconstruction wouldn`t be easy if the government applies the existing policy of redeeming the proceeds from the development.

Park Won-gap, Speed Bank’s senior real estate researcher, explained, “The regulations we have now cannot become worse. Reconstruction is the only solution to provide more housing units in a city.”

President-elect Lee and the Seoul municipal government prefer to reconstruct buildings to skyscrapers, a long-term advantage for the reconstruction drive. The presidential transition committee favors construction of 40- to 50-story apartments than mushrooming 20-story buildings to provide healthier residential environment.

○ Existing Houses: Sale Recommended Next Year

The presidential transition committee has publicly announced that the next administration would curb the real estate market not through taxes, but through lending. “We will decide how and when to modify the various real estate taxes next year,” said an official from the transition committee.

Kim Shin-jo, Chief Executive Officer of InEx Housing, said “If the new administration decides at the end of the year to cut the real estate transfer tax, what’s the point of selling your homes beforehand?”

Real estate agencies agree that nobody will sell a house worth more than 1 million dollars in Gangnam since the owner can save tens of thousands of dollars in transfer income tax.

Experts, however, say it is “OK” to consider buying houses for urgent sale if the prospective buyers or the owner of a house per household seeking to extend the floor space index. Even if the government reduces the transfer income tax, it would be limited to the owners of a house per household since the owners of multiple units may put the excessive units up for urgent sale.

“It’s time for the government to give some definite signals: we want to know whether it would maintain or reduce the transfer income tax,” said Kim, mentioning that if the presidential transition committee postpones overhauling the tax policy, the market is expected to confront lackluster transactions. If it becomes harder to sell a house, it will become harder to buy a new one.

○ New Houses in Localities: Do Your Homework

The phone inquiries from prospective buyers kept pouring in at the office in charge of sale of apartments to be built in Ulsan. The rumor that the area will be lifted from the “speculation area” soon swept the market, attracting the prospective buyers.

“When the ban is lifted, a buyer can take out a loan more than 40% of the sales price. That’s why people show higher interest,” said an official from a construction company.

Park Won-gap advised, “People who postponed the subscription due to difficulties over a part payment loan in the rural speculative area can buy houses. The price differs by the condition of the land. Thus, the buyers should avoid unpopular areas.”

libra@donga.com