Wrong prescription for realty market

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Wrong prescription for realty market

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“Will the real estate market revive?” asked a broker after the second economic team for the Park Geun-hye administration was announced June 13. “If the market doesn’t bounce back now, the future of the housing market is very grim.” Just as he said, the real estate market has drastically cooled down. Housing prices in other regions are increasing, and the overall price change is positive. However, the volume of apartment transactions, which had been on the rise this year, dropped by 20 percent in May compared to April. Transactions in Seoul and the metropolitan region plummeted by a whopping 25 percent.

The decline of housing sales can trap economic development. As the volume of transactions decreased, 3.3 trillion won ($3.23 billion) in transaction prices evaporated, as well as about 150 billion won in brokerage fees, moving costs and acquisition taxes. The economy has lost its lubricant.

Since the 2008 financial crisis, apartment sales in Seoul and its metropolitan area drastically declined, and the nationwide apartment transaction market shrunk to 30 trillion won annually. Households are not feeling the economic recovery because of the struggling housing market.

Reviving the real estate market will bring vitality to the economy. It especially has a great impact on the economy of average citizens. A healthy real estate market would bring more work for brokers, movers and contractors. When more housing is built, carpenters have more jobs.

The government is largely responsible for holding back the housing market in Seoul and the capital region, which had started to recover in the first half of this year. When the administration suddenly announced its plan to tax rental income, investors who counted on that income were discouraged. Even the primary home buyers, who are not interested in rent income, are reluctant to make purchases.

Just as the nominee for deputy prime minister for the economy Choi Kyung-hwan said, the government has put summer clothing on a patient who is still shivering. The diagnosis was wrong, and the prescription didn’t work. A researcher at a private economic institute, who advises the government on real estate policy, said he doesn’t understand why the government rushed with the rental income tax when the timing wasn’t right.

Many real estate market players agree with Choi’s diagnosis. The problem is the prescription. How do we remove the summer clothing and put on something warmer? When the floodgate opens suddenly, the water pours out and floods.

Government policy needs to keep pace with the market, but sometimes it should be a step ahead in order to eliminate uncertainty and allow time for the market to adjust to the changes. Moreover, it is a given that the officials within the economy team should work together and be consistent with policies.

JoongAng Ilbo, June 18, Page 29

*The author is a real estate news reporter of the JoongAng Ilbo.

BY AHN JANG-WON


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