Rejuvenate the housing marketOne of the most talked about topics in family gatherings during the Lunar New Year’s holiday was the lengthy slump in the real estate market and its weighty burden on households. It is a nightmare for the people facing retirement. Houses, which take up more than 70 percent of their assets, have lost their value in the market over several years. According to the Korea Development Institute, apartment trading fell by 21 percent last year from the previous year. Real prices of homes around the capital are estimated to have dropped more than 3 percent.
Amid scarce trade and falling price value, the “house-poor” are on the rise and their mortgage loans are in danger of turning insolvent. Protracted sluggishness of the real estate market and a steep price fall dampen consumer spending and threaten the overall economy.
Stimuli measures can help recovery in home value and market confidence. But they still bear a downside risk of stoking real estate speculation and insolvency in household debt.
Any new real estate measures should be directed to reinvigorate trade instead of prices. There should be deregulation of the financial and tax restrictions to stem real estate market speculation. Authorities should lower real estate sales taxes such as levies on home purchase and registration as well as property income taxes. They should also ease the heavy excises on owners of multiple homes to boost housing demand and rent supplies.
Finance Minister Bakh Jae-wan also recently said the heavy levy on real estate sales taxes and ceilings on apartment prices need to be lifted in order to stimulate housing trade. At the same time, financial restrictions aimed at fending off speculation require fixing in view of market conditions. Instead of strictly applying the loan-to-value and debt-to-income ratios on all housing loans, lenders should be given liberty to extend loans according to their affordability, risk management capacity, borrowers’ credibility and differentiated products.
Authorities must entirely change their perspective and approach on real estate policy. The market conditions today are completely different from the days when speculation was prevalent. The aging society and eased urbanization as well as low economic growth and interest rates have all changed housing demand. Policies, therefore, should be directed to keep the real estate market alive and lower mortgage loan risks.
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