Real estate policy is incompleteThe trend of rising apartment prices seems to have lost momentum, attributed to the government’s real estate-related measures. The Uri Party has been pressing the government for strong countermeasures under the logic that “skyrocketing real estate prices threaten the entire system of the country, with dimensions going beyond the present regime.”
Some hard-liners are even pushing rather extreme anti-market policies under the justification that “the majority of the people want it.” Kwon Oh-kyu, deputy prime minister for finance and economy, has criticized their plan for disclosure of the cost of apartments to reverse rising prices.
In the new policy, there are more than a few points that can be criticized by market theorists. Restrictions such as one mortgage loan per person clearly goes against market principles. It might have been better for the Bank of Korea to raise interest rates instead of raising the rate of payment reserves that the banks are required to deposit in the central bank.
It is hard to understand why the money should take a nap in the Bank of Korea. But whether it was influenced by political logic or populist policy aimed to appeal to the people’s emotions, we welcome the fall of apartment prices.
In order to reverse the psychology of an overheated market, it is necessary to mobilize all kinds of strong regulatory measures that go beyond the expectations of the market.
There is also no reason for us to make a fuss about a recent decline in apartment prices, as if that is a sign of a Japanese-style bubble.
Considering the extent of the price rises in the past, we still have a long way to fall back.
Even if we compare the rate of mortgage loans alone, the situation in the Korean real estate market is much better than that of Japan in the past. At that time, Japan was not only experiencing a real estate bubble burst, but also falling into a complex recession.
It is doubtful, however, whether apartment prices will follow a trend of long-term downward stabilization, as the government intends, because all policies the government introduced so far are incomplete.
They managed to stop the leak in the faucet, but there is no sign that the government will take a fundamental measure to absorb the floating money in the market. The amount of household loans, which is pointed to as the main culprit that made real estate prices skyrocket, is 590 trillion won ($628 billion).
But there’s also 500 trillion won of floating money in the market, next to the amount of household loans. As long as these huge amounts of money are not directed to flow into the productive sector, it is highly likely that any real estate policy will end up temporary.
To absorb floating money in the market, there is no better way than expanding corporate investments. It is the most productive method without any side effects. However, the plan to expand the Icheon factory of Hynix Semiconductor Inc. is going to be disapproved by the government.
And the plan to ease the investment ceiling on cross-affiliate shareholding, which is said to encourage corporate investment psychology, is drifting due to internal conflict in the governing party.
Under circumstances like these, it is hard to understand why the government is clinging to the introduction of a price cap system on apartment sale prices and requiring disclosure of sale prices of newly built housing units.
If the government really wants to hold down apartment prices, it should change its way of thinking. The government said painfully last year that the amount of mortgage loans has increased by 26.8 trillion won. It says this is the reason why apartment prices rose. However, the compensation for expropriated land the government paid for last year alone amounted to 17 trillion won.
It made us laugh that the governing party has passed a budget plan aimed at pump-priming the economy mainly by undertaking public works, while saying it intended to control real estate prices.
In a situation where money is released profusely, it is hard to expect proper effects for a policy no matter what financial regulations are mobilized.
Instead, I wonder if reducing large-scale development projects will prove to be a stronger and more effective real estate policy.
There is no doubt that political logic will prevail over the real estate policy as we get closer to the presidential election.
Presidential candidates might suddenly get busy making populist and opportunistic pledges that each of them will control apartment prices within a short period of time with their respective ideas.
What is urgent, however, is making the current real estate policy, which is half-paralyzed, into a complete one.
I hope that the government will create an atmosphere that encourages corporate investments and drastically reduce its ambitious plan for the balanced development of the nation.
Rather than taking new measures, now is the time to have the wisdom of waiting patiently for the effect of existing policies, like the expansion of supplies and imposition of higher real estate taxes.
We must take into consideration that the strong regulation on the total amount of mortgage loans Japan introduced in 1990 started to show its effect on the market only a year later.
*The writer is an editorial writer of the JoongAng Ilbo.
by Lee Chul-ho