People’s homes are at stakeSeoul’s real estate market has taken a heavy blow after the Seoul Metropolitan Government announced that it will be scaling back its original New Town projects while also raising the share of small apartments in the parts of the capital that will be reconstructed. Either because they are unwilling to move into smaller apartments or fear even larger losses, legions of property owners in the designated areas have been forced to sell at below-market prices of up to 100 million won ($88,400), for houses and 40 million won for apartments.
Seoul Mayor Park Won-soon is the source of the recent unrest in the capital’s real estate market. He ignored basic market principles in a bid to make more small-sized properties available at cheaper prices for the working class. He has also been sending mixed signals - approving petitions to enlarge the designated areas in some places and then turning down similar requests in others after civilian groups criticized him for fanning speculation. He also suggested that the central government downscale the minimum size requirement for apartments to 65 square meters (700 square feet).
His flip-flopping has merely added to confusion in the already slumping market, while his sudden announcement that the government will be easing off its ambitious New Town policy has antagonized district heads affiliated with the main opposition party. This lack of consistency from the mayor has sent residents of the districts and apartment complexes designated for reconstruction into a panic, as they fear the plan will not go ahead until Park steps down, which will not happen until 2015 at the earliest. As such, a number of residents’ associations are poised to launch legal challenges against him.
Such issues relating to redevelopment and reconstruction projects are complicated affairs that cannot be resolved overnight. If demand for reconstructed properties plunges and the real estate market freezes, the new residential units, which are being built at a rate of about 60,000 a year, would be in jeopardy.
Furthermore, demand for them can serve as a barometer of the state of the real estate market nationwide. A sudden slump in this one segment could cause the broader housing market to sink and spark a ticking time bomb of escalating household loans. If interest rates rise, the results could be catastrophic.
The government and city officials must cooperate to stabilize and stimulate the market. The public will not forgive them if their homes are lost.