Will house prices ever get back to normal?

South Korean Finance Minister Hong Nam-ki announced at a meeting on the real estate market with related ministers on Friday that eight urban areas in Seoul will be renovated by public developers to supply 4,700 homes. The South Korean government has decided not to temporarily lessen the burden of transfer tax for multi-home owners to put their homes on sale. Even with house prices skyrocketing week by week, it is hell-bent on pushing ahead with public development although it is questionable whether such a time-consuming remedy can ever increase house supplies.

Out of the 12 urban areas on which an improvement plan has been designed, eight candidates for public development were chosen by the government with their public interests and feasibility taken into account. However, there is widespread skepticism over chances of success. Residents object to the condition that public leasing houses may take up 50% of a higher floor area ratio according to the public development plan. Also, the government has not shown any change in its restrictions on parcel prices that are detrimental to redevelopment business value.

The government said that it will complete resident presentations in the eight areas in question by March. Parcel prices and floor area ratio are the two main keywords that capture the interest of residents. If the government tries to persuade residents to buy its idea without any answers to give about the two hot potatoes, it is no different than pressing them into signing a purchase contract without any price amount on the blank line. For this reason, only a few areas out of the eight candidates will see their residents agree with the government’s offer, experts say.

Consulting results, which were released part of the government announcement on public development candidates, even demonstrate how difficult it is for a government-led house supply to do its magic. Only seven small-sized complexes with fewer than 300 units in them applied for a consulting service. Large-sized complexes in preferred urban areas withdrew from consultation halfway due to their resistance against government-led urban renovation. It makes little sense that the government is still confident about increasing house supplies while involving small complexes in public development and leaving large ones which wait for private sector developers in the shackles of regulation.

What’s worse, the increase of transfer tax by up to 75 percent only erodes public trust in government policy. Finance Minister Hong said on a TV program last Saturday that it also matters to lead multi-home owners to sell their possessions from the perspective of home supply. His remarks automatically translated into a reduced transfer tax even for a limited time period. The housing market expected to see it happen. However, Hong reversed his remarks less than a week after they were publicly uttered. Who will ever buy his words although the finance minister says confidently that stable house prices will become a reality?