Gov’t proposal gets a mixed reception

Notices of apartment rent prices cover a wall at a real estate office in central Seoul. Amid skyrocketing jeonse prices, the government yesterday unveiled a new package of incentives. [NEWSIS]

After the government announced additional measures yesterday to revive the housing market, the construction industry offered a mixed reaction to the plan. On the one hand, the industry welcomes the government’s resolve, but on the other it is concerned about whether the proposal can be quickly passed in the National Assembly.

With the proposal to cut the acquisition tax rate permanently and offer a low-interest mortgage program, experts said the number of real estate transactions will at least get a small boost, but it is not likely to solve the problem of rising jeonse [a lump sum deposit in lieu of rent]. Jeonse prices are increasing as people delay buying because of falling house prices.

“The government’s latest measure certainly has limits when it comes to stabilizing the jeonse and monthly rent market,” said Park Won-gab, a researcher at Kookmin Bank’s real estate team. “Unless there is a signal that home prices are about to rebound, we won’t be likely top see an increase in sales or a decline in jeonse prices.”

Industry insiders say that what’s important is whether these measures can get be approved in the National Assembly. Already, the main opposition Democratic Party has formed a task force to tackle some of proposals by the government and ruling Saenuri Party.

In addition, earlier proposals to abolish capital gains taxes for owners of multiple homes, eliminate the ceiling on apartment prices and ease regulations for remodeling are still pending in the National Assembly.

Korea Housing Association Chairman Park Chang-min, who is also CEO of Hyundai Development Company, said yesterday that quick National Assembly approval of some of the pending bills would be a bigger boost to the housing industry.

Some industry insiders said they were bit disappointed there were no adjustments to the debt-to-income ratio and loan-to-value (LTV) ratios. The government yesterday explained that it didn’t consider revising those because of the possibility that household debt would increase.

The DTI ratio, introduced in 2006 to cool down an overheated market, determines the maximum amount of a loan a person can take out to buy a house in proportion to annual income.

The LTV rate is a gauge used by banks to determine the amount of a home-backed loan based on the price of the house.

“As a seller of apartments, we would like to see more aggressive movement by the government,” said a spokesman for construction company on condition of anonymity. “While major builders can go overseas, small builders like us still have to rely on domestic orders, and the housing market is still important.”

Meanwhile, some civic groups criticized the government’s measures as geared toward helping construction companies and multiple homeowners, and encouraging real estate bubbles.

“The reason why house sales are low is that house prices are still expensive, and people have expectations that they will drop,” Citizens’ Coalition for Economic Justice said in a statement yesterday. “The Park Geun-hye administration needs to check on what is the real reason for the jeonse problem and focus on getting rid of bubbles in house prices.”

BY JOO KYUNG-DON [kjoo@joongang.co.kr]