[EDITORIALS]Act now on real estateOrdinary people are despairing as they watch the rise of real-estate prices. The recent surge in prices has defied the government’s crackdown measures such as banning the sale of a new apartment before full payment has been made and increasing taxes on real estate.
Apartment prices in the Gangnam district of Seoul, have gone through the roof; some now cost more than 6 million won ($5,000) per square meter. The Bank of Korea recently cut interest rates, which could contribute to more fires in the overheated real estate market, not to stimulating the economy.
The demand for real estate as an investment, not as a home, is the driving force behind the bubble. Industry analysts say that about 380 trillion won in hot money is wandering around the investment markets, looking for any possibility of making a profit, and a lot is winding up in real estate. Meanwhile, demand for rental housing is sluggish.
If the government cannot quell speculation, the health of the entire economy could suffer. It must mobilize every means to counter the excesses of the market.
The government bans resales of contracted but unbuilt apartments only in “speculation zones;” that ban must be imposed nationwide.
In the aftermath of the 1997-1998 Asian financial crisis, Seoul permitted such resales in order to boost the real estate market and help the construction industry; that was the wrong policy then and still is now. But the Ministry of Construction and Transportation seems unwilling to rein in real estate prices. Speculation is hard to put out once it is ignited, but the ministry’s attitude shows why many people think this administration cannot move quickly even in an emergency.
A society where people cannot even hope to own their own homes is a failed society. To suppress speculation, the government must hike real-estate taxes and regulate the prices of new apartments.
But the boom is not only driven by the industry; low interest rates have also been a cause. The government needs a comprehensive strategy that will encourage investment in companies, not in making a bubble bigger.