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Gov’t aims to curb housing prices with stricter mortgage loan regulations

Gov’t aims to curb housing prices with stricter mortgage loan regulations

Posted December. 17, 2019 07:41,   

Updated December. 17, 2019 07:41


The South Korean government made Monday a new set of real estate measures, including financial, tax, and housing subscription policies. The comprehensive real estate holding tax for owners of two or more houses will be raised up to 4% and mortgage loans will be banned on all purchases of apartment unit priced over 1.5 billion won. The government also expanded areas subject to presale price cap system and banned the purchase of newly-built apartments via housing subscription system for those who have done so in the past 10 years. This new regulatory packages are the most comprehensive and strict measures since the last one announced on Sept. 13, 2018. But the new regulations put actual buyers at disadvantage given the government’s measures with no housing supply and tightened mortgage loans.

In order to stabilize housing prices, the government should control speculative investors and increase housing supply for actual buyers. It is a step in the right direction to raise the possession tax for multiple homeowners and encourage them to sell property by giving them a grace period. But the six month grace period the government suggested is too short for multi home owners to sell extra property they own. The government should make consistent efforts to induce multiple homeowners to sell their property by using a grace period of one or two years.

Banning mortgage loans for high-price homes could benefit people with a lot of cash. Cutting the loan-to-value ratio for apartment unit priced over 900 million won is depriving the middle class and the youth of the chance to buy a house in Seoul when the median price of apartments in Seoul is 880 million won. Banning those who have purchased an apartment in an overheated speculative area via housing subscription system from buying another in 10 years is another ineffective measure aimed only at lowering the competition rate since it takes 15 years for home buyers to receive the highest points in the housing subscription system.

Although the housing supply rate in Seoul amounts to 96%, the city needs more new apartments as most of the existing ones are old and shabby. The city should increase the supply of new houses by supporting reconstruction and redevelopment instead of curbing the supply with the presale price cap system.

Over 1,000 trillion won of floating money is currently in the market. The government should take macroeconomics and the financial market into consideration in order to stabilize housing prices. It should come up with policy measures so that the floating money can be invested in productive areas, including businesses, venture companies, and financial products. People have already lost their confidence in the government’s housing regulations. The government said it would come up with stricter measures next year if the latest one proves to be ineffective. But it would only make the market grow immune to regulations. The government should consider it as its last chance to fix the problem and correct the flaws in new regulations.

Yeon-Su Shin ysshin@donga.com