Balanced deregulation neededThe government scrapped the last resort in property regulations in its all-out effort to stimulate the real estate market. The new set of measures that include easing reconstruction regulations, new apartment subscription criteria and land donation rules follows the lifting of the sensitive cap in mortgage-related loans. This time, it has abolished all the “hardware” regulations that weighed heavily on the construction market to effectively revive housing demand.
The centerpiece of the new measures is the relaxation of reconstruction eligibility. Most municipal and provincial governments do not approve reconstruction of apartment buildings unless they are at least 40 years old. The government wants to shorten apartments’ maximum age limit for reconstruction to 30. Under the revision, more consideration should be given to living conditions, such as a shortage of parking space or too much noise when endorsing licenses for reconstruction.
The public management system of housing supply should also be converted into a support system. After the bill on removing hefty fines on profits after reconstruction and minimum quotas for small-scale housing pending in the National Assembly is passed, there will no longer be any major hurdles in apartment building reconstruction.
Rebuilt apartments have served as a barometer for market demand. If demand for reconstruction supplies in Gangnam District, southern Seoul, increased, so did overall real estate prices. The government hopes to repeat the reconstruction boom that led to the creation of the posh Gangnam District, Mok-dong, and Bundang District neighborhoods to revive the housing market. It also decided to suspend the developments of new towns and satellite cities and other large-scale public residential areas to reduce the oversupply of housing in order to encourage demand for reconstruction.
The government has sent a clear message to the real estate market that this could lift demand. Housing prices won’t likely suddenly jump as they did in the past based on speculative forces due to demographic changes from low birth rates and more older people.
But reconstruction could worsen the shortage of rental units and send rent prices higher. A reduced supply of rental units could mean less affordable housing for the working class. Authorities must make sure that the deregulations do not end up benefiting the well-off at the expense of the poorer population.
JoongAng Ilbo, Sept. 2, Page 34