Sizzling home prices

Apartment prices in Seoul are sizzling hot. Unit prices in the complexes in Apgujeong-dong in Gangnam District, southern Seoul, eyed for redevelopment have reached 100 million won ($88,928) to 300 million won over the last three months. Due to scarcity in offers as homeowners withheld sales on hopes for further gains, buyers are in heated race to snatch up what is available by offering higher bids.

The phenomenon has spilled over other southern cities. The price for a 71.57 square meter (770 square foot) apartment in Deokpo, Busan, shot up 37 percent in a just a month. Some apartment neighborhoods in Gwangju, Ulsan, Pocheon, and Gimhae gained more than 20 percent.

The overheated housing demand could add fuel to the potentially explosive household debt condition. Interest rates remain record low and regulations related to mortgage loans still soft to feed demand for real estate properties. Household debt by the end of March reached a new historic high of 1,359 trillion won.

The government has been delaying taking action as new President Moon Jae-in ordered to come up with comprehensive package by August. The government embarks on crackdown on areas with speculative and overheated signs next week. But that may not be enough.

The vacancy in the Financial Services Commission chief also is another reason for delayed measures. The deputy prime minister for economy who begins office on Monday must immediately hold discussions with the FSC to come up with emergency actions.

Some of the heat could come off if the government announces intention of tightening the cap on loan-to-value and debt-to-income regulation that had been relaxed in 2014 to help stimulate the real estate market.

Universal tightening, however, could draw a hard landing in the market. The cap should be selectively raised for neighborhoods with signs of overheating. Reviving the category for speculative zones to tighten oversight over housing transactions should be considered depending on market developments.

JoongAng Ilbo, June 10, Page 26