A matter of timing?
Finance Minister Yoon Jeung-hyun said yesterday he doesn’t think additional measures to tame the real estate market are necessary at this point.
He insisted that he never considered tightening the debt-to-income (DTI) ratio for all of Seoul, which would have made it much harder for many people to get loans to buy properties. This appears to be an extension of the government’s stance that while it will consider preparing an overall strategy to deal with the situation, it’s a bit premature to execute such a strategy.
Still, despite tightening the loan-to-value (LTV) ratio last month, mortgage lending continues to rise to worrisome levels. In some areas, housing prices and jeonse - a larger deposit often required to rent apartments - are both soaring simultaneously. If the nation’s top economic official outlines specific, sweeping measures in a definitive way, it could send the wrong message to an already unstable market and tie his hands.
The government boasts that Korea has overcome the economic crisis faster than any other country in the world. On the flip side, though, that essentially means Korea must prepare a strategy to tame its property market before anyone else. Obviously, implementing a definitive strategy immediately could be dangerous because it’s too early to say we’re in the clear yet, which is the point the government is arguing.
But there remains a question over whether such a strategy should even be implemented once the economy has fully rebounded. If property price bubbles are problematic, then tailor-made policies are necessary. We believe the target of the strategy must be clearly set, and it should be departmentalized.
The Bank of Korea froze the key interest rate. Judging from the current economic situation, it is indeed too early to resort to macro policies such as raising the interest rate. Instead, we have to respond to price increases with micro measures, such as restrictions on LTV and DTI.
While battling the economic crisis, excessive money has entered the market. Policy efforts should be focused on dealing with property price hikes, a side effect from the overflowing amount of money out there.
But when the central bank maintains a historically low interest rate and the top economic policy maker asserts there will be no additional real estate measures, we all know what will happen next. It was only a year ago that we saw what overheated real estate sectors could do to the world economy. We have to stop the excessive amount of money funneled into home loans. The LTV and DTI restrictions must be implemented at an appropriate time. That way, we can prevent the collapse in the housing industry from dragging down financial institutions.