[EDITORIALS]Let the market decideApartment prices in Gangnam, southern Seoul are on the rise again after dropping temporarily due to stricter real estate policies introduced by the government on Aug. 31.
Many apartments in the district have recovered their value prior to the new policies and some have already exceeded their previous values.
The government had been confident in taming surging apartment prices but is now clearly embarassed. The ruling party argues that the real estate market is rebounding because of opposition from the opposition party and a lack of cooperation from the Seoul city government.
The National Tax Service ―as if it had waited for this moment ―now says it will start tax investigations into alleged real estate speculators.
However, levying punitive taxes is not an effective way to control surging real estate prices.
As we have often pointed out, the real estate market fundamentally moves accordingly to supply and demand.
So far, no policy that contradicted that market principle has succeeded. The reason that apartments slated for reconstruction are expensive is because the price reflects the value of the new apartment that will be built.
Above all, in the long run, redeveloped apartments can lower the overall price of apartments by increasing the supply of housing.
However, the government is impatient about the immediate rise in apartment prices, so it is trying to prevent transactions and regulate reconstruction.
Such policies might dampen apartment prices in the short run but in the long run it will only encourage price increase as supply is reduced.
The argument that the government’s real estate policy failed because of opposition by the opposition party is not persuasive. According to an analysis by the Korea Institute of Public Finance, the effective tax rate on real estate has no correlation with the stability of apartment prices. Using this information, many citizens are rebelling against the government’s excessive hikes in property taxes.
It is also irresponsible to blame the opposition party and the Seoul government just because the massive tax failed to suppress housing prices as planned.
The government should focus on providing a supply of premium quality housing instead of concentrating on fluctuations in the prices of redeveloped apartments.