Real estate hazards

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Real estate hazards

Kang Ho-in, the minister of land, infrastructure and transport, expressed concerns about excess housing supplies during his first meeting with chief executives of housing-related companies. Kang, who pointed out signs of excess in supply and imbalance in demand when he took office earlier this month, emphasized that home supplies should be in tune with demand and regional conditions. It is a relief to hear the government is finally paying attention to market conditions.

The local housing market is boiling. Supply that was newly licensed for redevelopment or construction totaled over 600,000 as of last month. By the end of the year, planned home supply will reach 700,000, the largest volume since 1990. This year alone, 480,000 housing units were offered for sale, nearly double the usual annual average. A redeveloped apartment complex in a posh southern Seoul neighborhood with a Han River view fetches 40 million won ($35,000) for a space of 3.3 square meters (35.5 square feet). The bid competition ratio for new supply in popular neighborhoods exceeds 100 to 1.

If the economy is doing well, a heated housing market would be a natural phenomenon. But it is the opposite now. Estimates for Korea’s growth rate are being slashed. Household debt exceeds 1,200 trillion won. Real household income grew zero percent in the third quarter. The housing market currently may be powered by debt that could later backfire.

The government, however, remains relaxed. Kang said authorities were watching the market, but the situation does not demand immediate action. But the potential for tumult is already obvious. The real estate market and overall economy could be rocked once the U.S. Fed starts increasing interest rates, probably from December. There must be more fundamental measures. Housing expenses must be brought down through regulation of the spike in rent prices. Public rent supplies must be increased. The government is hoping a revival in the real estate market could heat up the broader economy, but it must remember that it could end up burning it.

JoongAng Ilbo, Nov. 26, Page 34

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