[VIEWPOINT]Cures for an ailing housing martThe interference of the government in the property and housing market is going to give people who really need it an opportunity to buy houses at affordable prices. In addition, the move might help the Korean economy escape the doldrums.
When Korea was in the middle of the Asian economic crisis, the government did the right thing when it scrapped restrictions on housing prices and allowed a market in which the rights to buy a house could be bought and sold.
Encouraging the real estate financial market was another measure that helped the Korean economy recover. Since the second half of 1999, the real estate market has been recovering strongly, and now it is overheating.
The market for the sale of newly built housing has all the characteristics of a casino. The real estate lease market has moved from long-term leases based on a refundable lump sum payment, to monthly rents. Low-income earners have started to suffer from a shortage of long-term lease housing and skyrocketing monthly rents.
The government has announced plans to ease the housing demand, provide financial aid for the poor and increase the housing supply as part of its "Housing market stabilization plan."
The suppression of demand is mainly an effort by the government to calm the overheated market by prohibiting brokers from mediating the selling and buying of the rights to buy a house. In line with this are measures such as preferential status given to people who do not own a house. These measures taken by the government to cure the ailing real estate market in a balanced way are the first steps in the right direction. The government's unwillingless to put further restrictions on housing prices is another good sign.
One has to take a close look at the real estate market and wonder if the situation justifies government interference.
If we compare the situation with rising house prices in the late 1980s we can find some similarities and some differences.
For similarities, the house construction business was low and hence the demand was high. Cash was out in the market and the rise of house prices in the Gangnam area triggered a general rise in house prices while there was a shortage of building lots. As for differences, types of real estate and affected areas are rather limited and the rate of increase is comparatively smaller.
In addition, it is much easier to borrow money from a bank nowadays. In the late 1980s, the problems in the market mainly came from the abundant money that was floating around, which proved to be a macro-economical problem. Now, it is a problem related to micro-economical factors such as the rebuilding boom, unbalanced demand and supply problems in certain areas and the long drought of supply on the housing side.
It is therefore important to focus the government's policy on the balance of the supply and demand side in the capital area. Since it takes a long time to develop building lots and housing, the government should not change its policy based on short-term factors such as fluctuating house prices.
Currently, if one wants to change a long-term lease to a monthly rent the annual transition rate is 10 percent, giving renters a heavy financial burden, but the market has just begun to form and more time is necessary to determine what is wrong and what is not.
The government is certainly right in determining that the supply of building lots is the key to stabilize the real estate market. It may take some time but there is no short cut to do it.
There are times when it is necessary to calm public opinion and crack down on real estate brokers, but taking sufficient measures to curb the development of quasi-agricultural land in order to protect land that really needs to be protected is equally important and perhaps even more so.
Also, the relaxations of rules that forbid the development of exclusive agricultural land are surely matters that are more pressing.
Furthermore, as new satellite cities are being rebuilt, plans to incorporate into these areas, workplaces as well should be devised before any halfhearted gestures are taken that aim at just calming the public.
The write is a professor of real estate management at Konkuk University.
by Son Jae-young