[EDITORIALS]The apartment price spiral

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[EDITORIALS]The apartment price spiral

Sales prices of newly-built apartments are skyrocketing. In a vicious circle, a rise in the prices of new apartments pushes up the prices of existing ones, which, in turn, stimulates the value of new ones. Although the government has tried some measures to break the cycle, including banning the sale of the right to buy an apartment and conducting tax investigations into suspected real-estate speculators, the prices show no signs of falling. The average price of new apartments to be offered on Tuesday is 8.8 million won ($6,600) per pyeong, about 3.3 square meters, up 5.5 percent from last year. The Gangnam area south of the Han River is the epicenter of the latest upsurge. Newly offered apartments there cost an average of 15 million won per pyeong, up 12 percent this year. Even a 25-pyeong apartment, built mostly for the low-income brackets, costs about 13 million won a pyeong. Critics say that those prices have risen too much from a 5 million won average in 1997, before price controls were eased.

Builders attribute the increases to steep rises in the costs of land, building materials and labor. Even though there is a rush of eager home buyers whenever new housing units near Seoul are on sale, if the prices are outrageously inflated, it is a serious matter. For instance, a builder selling new apartments in Gangnam is suspected of having booked the land price at twice his actual purchase cost. Some argue that the company's construction expenditures are up to three times more than those for other newly-built apartments in a nearby area. Such suspicions have prompted consumer rights activists and civic groups to call for lower prices and more disclosure from construction firms.

Failure to deal with suspected price manipulations would undermine the policy goal of the government's apartment price liberalization. In order to clear themselves of such suspicions, builders should make public the bases by which they price their apartments. If they are confident of the fairness of their prices or the quality of their buildings, they should not be reluctant to face scrutiny. Isn't it too late for the government to go back to the old policy, in which it required builders to win approval for their sales prices?

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