Go to contents

Emergency Economy Gov`t?

Posted July. 23, 2010 11:25,   


The government has failed to release measures to revitalize the real estate market despite setting a date for the announcement. Strategy and Finance Minister Yoon Jeung-hyun held a meeting with Land, Transport, and Maritime Affairs Minister Chung Jong-hwan, Financial Services Commission Chairman Chin Dong-soo, and Financial Supervisory Service Gov. Kim Jong-chang, but they failed to narrow differences and postponed the announcement. Public confidence in the government has been undermined and the people, who had high hopes for the government, are disappointed.

The government took a step back in saying it will wait and see the market a while longer and release measures afterwards. It did not seem confident in how property prices and household loan burden will increase if the debt-to-income ratio is eased. Certain experts say the measures might have proven ineffective since the property market is not active. Another reason had it that the new presidential chief of staff is reluctant to release policies that might appear favorable to those with multiple homes.

The real estate market is stable but few transactions are being made. Around 8,000 apartment units were traded in the Seoul metropolitan area last month, down 64 percent from 22,500 in October last year, when the debt-to-income ratio requirement was expanded to non-banking financial institutions. Fourteen districts north of the Han River saw a drop of 73 percent. Even the Seoul metropolitan area has unsold apartment units, breaking the myth of an impregnable real estate market. Falling housing prices are desirable but the market is so inactive, people cannot move out at the proper time. If the government fails to take action on the paralyzed real estate market, its self-proclaimed title of “emergency economy government” used for 19 months will ring hollow. A transaction slump threatens the middle class and low income people.

The government might want to kill two birds – a stable housing market and recovery of real estate transactions – with one stone, but once the real estate market dies, price stability will be no longer meaningful. Baby boomers born after the Korean War are beginning to retire, so the number of home buyers is going down. The younger generation prefers renting over buying, leading to a housing glut. If sluggishness in the real estate market persists, deregulation is needed to allow people to buy houses.

The discussion over real estate measures seemed like a tug of war between residential government agencies and financial government agencies. Finance Minister Yoon, a leader in economic policy, or presidential policy chief Baek Yong-ho have failed to narrow their differences. If the government wants to play its role as an emergency economy government, it should know exactly what the people want. It must consider changes such as cutting the heavy transfer tax levied on a single-home owner who wants to move out.