Minimize side effects

Drugs are addictive. The more you use them, the more you need. Their side effects also grow. The same applies to the Moon Jae-in administration’s real estate policy. Its relentless drive to curb soaring housing prices only distorts the market — and ultimately will hurt those who really need affordable places to live.

The government started to restrict loans to owners of houses worth over 900 million won ($770,220) from Monday if they sell their residence to move to other areas to live as on jeonse, a uniquely Korean way of renting a house with a large, long-term deposit. If they are found to have bought another high-priced house with the money they borrowed from banks — instead of living in the jeonse property — the loans are retrieved. If their repayment is delayed, they immediately become a defaulter.

This high-handed approach is basically aimed at preventing people from seeking a windfall by investing jeonse loans into buying a new house. But the measure has already taken a toll on the housing market.

Most affected are the people who possess their own houses priced over 900 million won and have moved to other areas to get better educations for their children, for instance. If their landlords demand a raise in rents, they have to change their jeonse for their own house into monthly payments.

Despite the financial authorities’ 3-month suspension on the ban for those who plan to move again to other houses without an increase in their loans for jeonse, confusion persists in the market. As a result of the government’s tougher regulations on loans for jeonse, an increasing number of landlords in the posh Gangnam districts have started renting their houses for monthly payments or a mix of jeonse and monthly payment.

In such circumstances, many jeonse tenants with their own homes can be tempted to raise jeonse prices of their own houses. That could trigger a domino effect across Seoul and the capital area. Jeonse prices for apartments in Seoul have already reached a peak due to layers of regulations. With the median price of Seoul apartments already nearing 900 million won, the government’s toughest-ever regulations will only deepen uncertainties in the market.

The government is surely aware of such side effects. Regulations are not a panacea. The tougher the measures, the more they distort the market.

JoongAng Ilbo, Jan. 21, Page 30