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The right time to buy a house?

It’s about time that we review the progress and think about the future of the real estate policies created by Finance Minister Choi Kyung-hwan’s economic team. Citizens hoped for a sophisticated and effective plan. While some thought leaving it to the market was the best policy, the government cannot be indifferent when it comes to the commodity of housing. The media raised the banner of “Choinomics,” named after the Vice Prime Minister for Economic Affairs instead of the president or the prime minister because we had high hopes for his policies.

It was drastic at first. The market raved over the bold expansion of public finance, pressure on the Bank of Korea for quantitative easing and the desire to accomplish something. But the praise stopped soon enough. It turned out that his ambitious plan was not effective for the economic environment. Choi’s half-baked slogans lacked analysis and were not meticulous solutions.

The key to Choi’s real estate policy was “get a loan and buy a house.” Boosting the real estate market is the easiest and fastest way to economic recovery. When real estate transactions increase, employment and spending will grow as well. That’s why the authorities eased the loan-to-value and debt-to-income ratios. They seemed to think that the real estate market would regain full force if speculative buyers ignited the fire.

But the approach is misdirected. The seed of failure was planted because the team was not in touch with reality. Basically, they did not take income and demographic structure into consideration. When the price-to-income ratio (PIR) is over 20, the bubble bursts in the real estate market unless the population is growing. The Bank of Korea’s survey shows that Korea’s PIR last year was 23.4. PIR in the 11 districts south of the Han River was 47.5. This means that housing prices are higher than income. Demand for houses among middle-aged buyers peaked last year and is declining.

Consumers are smart. Who would buy at the moment? Owning means paying acquisition tax, property tax, loan interest and maintenance. Homeowners need to worry about depreciation as well. Aside from certain popular areas, owning a house can be a burden.

Using the real estate market to boost the economy is ineffective. Providing stable living conditions is more important. In the low-interest rate era, deposit-based leases are not likely to stay for long. As landlords increasingly switch to monthly leases, tenants will have bigger burdens. It will widen the gap between the rich and the poor. Choinomics needs to change direction now.

The author is a business and industrial news editor for the JoongAng Sunday.

JoongAng Ilbo, Nov. 17, Page 34

By KIM JONG-YOON