An alarming apartment situationReal estate prices in southern Seoul are sizzling. The hottest are apartment complexes set for rebuilding. They stretch from Gaepo-dong in the east to Banpo-dong and Apgujeong-dong in the middle to Yeouido-dong and Mok-dong in the west. Home values are said to jump 10 million won ($8,500) overnight in some places. Some rose 100 million won in two weeks and 300 million won in a month.
The smallest unit at the Shinhyundai apartment complex in Apgujeong-dong, just 85 square meters (915 square feet), sold for 1.4 billion won two months ago. The price today? 1.6 billion won.
There are signs of speculation. Even realtors are advising discretion.
It is not normal for the sale price of a redevelopment apartment unit to fetch 50 million won per square meter when the economy overall is receding. But we see little interference from authorities except for checking bank loans. Meanwhile, the discrepancies in home value between southern Seoul and other areas are widening fast.
The overheating stems initially from record-low interest rates. Ample liquidity has centered on areas in southern Seoul. The government is partly at fault for distorting the market. Real estate regulations were recklessly lifted by the former deputy prime minister for economy, Choi Kyung-hwan, to stimulate the economy. Reconstruction restrictions were eased along with housing loan regulations. Too much was liberalized too fast.
The problem is authorities are turning a blind eye to the fallout. They are wrong if they believe heat from the real estate market warms up other parts of the economy. Gone are the days when high home values aid the economy. No matter how hot homes in southern Seoul become, prices elsewhere remain cold.
Real estate recovery has its limits due to demographic factors. The polarization in real estate prices could increase inequality. Society could become divided as wealth is passed down through assets.
The government must rein in the real estate market. It should consider a cap on sale prices or a 50 percent tax on excessive profits from southern Seoul apartments. In the longer run, the northern Seoul residential areas need to be redeveloped. Investors should also restrain themselves.
oongAng Ilbo, June 15, Page 30