[EDITORIALS]Speculation is still a problem

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[EDITORIALS]Speculation is still a problem

It has been five months since the government proposed a radical measure for curbing real estate speculation. The so-called “10-29 real estate measure,” named for the date it was announced, has to a certain extent calmed the overheated speculation. But the competition last week to win the rights to bid for an apartment in the City Park complex in the Yongsan district showed that without fundamental changes, there can be no real solution to the problem.
Some 250,000 people spent 7 trillion won ($5.8 billion) on application fees for City Park apartments. This rush was due to the fact that winners could expect to resell the apartment for considerable profit ― the last chance to do so before the revised law took effect. This meant there would be no more such incidents, the government said. The government seems to think all it needs to do is tax the reselling of apartments and restrict any illegal reselling.
But there are still local bouts of speculation in several places, where real estate prices have jumped considerably. This is because the overflow of money in the market is not finding any outlets but in real estate. There is a total of 380 trillion won sleeping in the form of short-term deposits of under six months in financial institutions. Some tens of trillions of this money could flow to Korea’s next “City Parks” and upset the economy. Also, a considerable amount of the money that went toward bidding for City Park apartments is estimated to have come from bank loans. This means that there is plenty more floating money ready to be used for speculation anytime.
It would be difficult to expect the economy to recover when money in the open market is flowing around to be used in speculation. Measures must be provided to induce this money to be used in healthy production and consumption. There is a need to develop diverse financial instruments to divert money toward investment in production. Financial instruments that can safely guarantee expected returns of a certain level, even at low interest, could absorb the money in the open market and minimize the unstable elements in the economy. The government must come up with a fundamental measure to address real estate funds while making sure that bouts of speculation such as the one over City Park do not occur again.
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