[Viewpoint]Measures are misunderstoodThe government announced a new measure to invigorate the real estate market on Nov. 3. This is the seventh real estate-related measure announced since President Lee Myung-bak took office. The most recent measures are “economy invigoration” rather than “real estate invigoration,” but people and the press are paying attention to its effect on real estate.
Of special interest is the relaxation of regulations on the rebuilding of existing apartment housing. Some people are concerned that easing regulations on rebuilding will rekindle excessive real estate speculation. This concern originates from a lack of consensus about the measure’s effects on the construction market and real estate transactions.
The recent measure includes, in addition to an easing of rebuilding regulations, transfer tax exemption for multiple-home owners in rural areas, cancellation of the designation of most of the Seoul metropolitan area as a real estate speculation zone, lowering of interest rates on delayed payments for public building sites by construction companies and expanded application of government-guaranteed securities for the payment of government construction projects.
Whereas an Oct. 21 measure focused on supporting construction company liquidity, the new measure includes an economy-boosting measure that can stimulate the construction industry and raise housing demand.
New demand must be created to address the problem of housing prices in the short term. And one way to do this is by easing regulations on apartment rebuilding. Easing regulations on development projects in Seoul, expanding public spending on infrastructure and executing 30 new projects will all have short-term benefits.
It is possible to see the government policies as thought out and have their respective goals if viewed from a wider perspective. However, the market is busy criticizing the government for increasing instability by making frequent policy announcements and rashly easing regulations in the name of economic revival.
So why is the market critical? The reasons can be summarized as follows.
First, there is a lack of understanding among people about the nature of the current crisis.
The global economy is currently readjusting the value of assets everywhere. There is a sense of expectation, in Korea’s case, that the real estate market will revive because the fall in real estate prices is small and the government has continuously announced measures that ease regulations on real estate. However, this is probably because ordinary people and consumers do not feel the crisis our economy is facing now as strongly as construction companies and financial institutions do.
Since the real estate market’s current stagnation is largely due to macroeconomic conditions rather than regulations, a simple easing of regulations will not be enough to change the market atmosphere.
Easing regulations may raise expectations that real estate will go up in value, but as the number of unsold housing units is large and the financial problems of families and companies have not been solved yet, it is unlikely this will revive the economy.
Therefore, easing regulations will only have an effect after the real economy revives. If economic recession is prolonged, easing regulations will be of no use no matter how widespread it is.
The current easing of regulations is nothing but a protective measure to prevent the situation from worsening any further.
Second, the timing and the way the government made the announcements also leads to market skepticism. The contents of the measure reported by the press in advance included much bolder plans than what the government actually announced. The measure the government presented to the market was a watered-down version of what was discussed before.
The same is true of most other policies the administration has announced. It is no wonder the market reaction is not so good.
In the sense that the measure is a pre-emptive action taken before the problem expands, its justification as a way to counter the economic crisis may be a little weak. Nevertheless, the fact that the source of the financial crisis was the real estate market fully supports the need for a plan to stabilize and revive domestic real estate.
The problem is that the market is worried about side effects after the economy revives. The government needs to concentrate on first creating a consensus. Then, it should overcome the current financial crisis and restore credibility that its real estate policy is a crisis countermeasure.
*The writer is a researcher at the Construction and Economy Research Institute of Korea. Translation by the JoongAng Daily staff.
by Kim Hyun-ah