Time to cool off

The government is poised to take action to rein in soaring real estate prices in the Gangnam area. Pointing at a sharp rise in the value of apartments earmarked for redevelopment in the posh districts, the Ministry of Land, Infrastructure and Transport is considering the idea of restricting the handover of apartment ownership before actually taking residence and improving apartment application systems.

Market watchers cautiously interpret the move as a signal that the Park Geun-hye administration is changing its real estate policies from deregulating the market to boost our sagging economy to controlling the overheated market after seeing unwanted side effects such as snowballing household debt and the polarization of our property market.

Nevertheless, the government is not likely to change its course overnight, as seen in the ministry’s emphasis on gradual and limited change. The ministry is considering the idea of extending the period for apartment ownership handovers from the current six months to one year and reintroducing previous restrictions on reapplications for new apartments. The government believes it is too early to designate the three districts in question — Gangnam, Seocho and Songpa — as speculative areas. If a certain area is named a speculative area, buyers can hardly expect a windfall from selling their apartment ownership due to a number of restrictions. An official from the ministry said it will come up with additional measures if the market continues to be overheated, while stressing the need to apply narrow-focused prescriptions at the moment.

We understand the government’s dilemma given the wide divide in our real estate market. Despite the rush to invest in Seoul, other regions are nearly frozen. While a 3.3 square meter unit space of an apartment for redevelopment in Gangnam District costs 40 million won ($35,000) on average, applicants can hardly be found in small cities across the country. Strong measures to cool the superheated market in Seoul could lead to a freeze in our overall property market.

What we need is simple, clear and drastic solutions. After declaring an end to existing real estate policies, the government must tell the market that its policy paradigm has shifted from easing regulations to controlling demand, and from eased mortgages to tightening up. The government must restore earlier restrictions based on loan-to-value and debt-to-income ratios. The polarization of our property market and the massive household debt amounting to over 1,257 trillion won are more dangerous than a hard-landing of the market. If the government fails, the social divide may explode.

JoongAng Ilbo, Oct. 18, Page 30