The South Korean government has warned of a potential drop in housing prices. Deputy Prime Minister and Finance Minister Hong Nam-ki said Wednesday at a ministerial meeting on the real estate market that excessive leverage will pose downside risks to housing prices, asking the public to make reasonable judgment when buying houses, instead of chasing purchases. The deputy prime minister reiterated a possible fall in housing prices warned by the Bank of Korea (BOK) in its regular report on financial stability on June 22.
Housing prices, which have been stagnant after the Feb. 4 housing supply plan, are on a steep rise again both for sale and jeonse (long-term rent with lump-sum deposit). The house media price in Seoul has exceeded 1 billion won and is approaching 500 million won nationwide. The situation cannot be neglected as there are barely any houses for sale as there is a high demand and a shortage of supply on the market. It is questionable if the government can stabilize housing prices by sending out a warning or imploring the people.
Rising home prices is a global phenomenon. U.S. house prices surged the most in April in 34 years, and Canada, the U.K., and New Zealand are in a similar situation. Americans are fleeing cities and buying houses in the suburbs amid COVID-19. There is a growing new demand from people who have benefited from the pandemic. Rising housing material prices have also pushed up house prices. South Korea is experiencing a similar trend. It is time for the government to manage liquidity in the market and come up with supply and demand measures by region and class.
Despite such circumstances, the number of apartment construction permits approved by the Moon Jae-in administration is on the decline. The number of newly built apartment has reduced, aggravating the jeonse crisis. The government, which has blamed the situation on real estate speculation, belatedly admitted a lack of supply in the market but is failing to come up with decent supply measures. The supply measures announced without consultation have faced opposition from the residents and the supply of housing districts is being disrupted by the scandal over the Korea Land and Housing Corp. (LH). The government is just repeating the same thing, telling people to wait. How much longer do people have to wait when those living in rented houses have nowhere to go?
The supply of houses is decreasing but there are barely any houses for sale. People are reluctant to sell their houses due to high real estate transaction taxes, choose to give their property to their children rather than selling them, and avoid renting out their property due to regulations. It is not a responsible attitude for the government to issue warnings or implore people while neglecting market demand and supply. In addition to implementing mid-to long-term supply measures without any setbacks, it is necessary that the government revise regulations so that real estate transactions can take place in the market right away.