Real estate takes a hit after Moon’s measuresAt the end of last week, a 72 square-meter (775 sq. ft.) apartment in Banpo, Seocho District, southern Seoul, was offered for sale for 1.65 billion won ($1.46 million) - down from an original asking price of 1.8 billion won.
“The owner, who owns two apartments, is offering up the unit in a hurry,” said the real estate agent. “Until a couple of days ago, there were a lot of inquiries about it. But today, no buyers are interested.”
The local real estate market is feeling the effects of the Moon Jae-in government’s second round of real estate measures aimed at cracking down on speculative buying, which was announced on Aug. 2.
Unlike measures announced in June, the latest measures labelled all districts in Seoul as speculative neighborhoods and applied stricter regulations on mortgages.
The measures specifically targeted people who own multiple residences by levying a higher tax on units they sell.
The market responded in a couple of days. Potential buyers disappeared and asking prices on apartments slipped 100 million won or more.
“We’ve been getting calls from apartment owners that are worried about the fall in apartment prices,” said a realtor in the highly popular area of Gaepo-dong, southern Seoul.
Some real estate agents in Gangnam have closed up shop temporarily.
According to real estate information provider Budongsan 114, Seoul apartment prices rose 0.37 percent compared to last week while apartment complexes being redeveloped in Seoul added 0.74 percent in the same period. However, these gains represented a drop from the 0.57 percent and 0.9 percent gains of the previous week.
Budongsan 114 said the market still showed a gain because it was only a couple of days since the government’s measures were announced. It added that sellers are no longer determining prices and that momentum in the prices of redeveloped complexes had halted.
“Because of the intense measures against speculation, which the market hasn’t seen in the last 10 years, many potential buyers are waiting to see how things shake out, and this will lead to a gradual easing of growth of apartment prices,” said Lim Byeong-cheol, a senior researcher at Budongsan 114.
The market is expected to take another hit after the National Tax Services announced last week it will be intensifying its audits of people who own multiple real estate properties.
The tax agency said Friday that the audit targets will be limited to owners of multiple residences who have at least one apartment in a project being redeveloped in Gangnam, or a non-adult who has either bought or sold a high-valued apartment. Some real estate speculators make transactions in the name of a child.
The tax agency said it will be tracking down the means of financing used by speculators and see if they have resorted to shady dealings, such as declaring lower transaction amounts to cut back on their tax bills.
They are also looking into whether there have been illicit acts practiced in buying or selling preconstruction apartment rights.
In 2005, the Roh Moon-hyun administration used 9,700 tax agents to investigate 2,700 people suspected of real estate speculation. In Korea, speculation on real estate is not as accepted as in other Asian countries like China. Politicians found speculating on real estate suffer, and liberal governments routinely try to make it more difficult for profits to be made from it.
In a videotaped interview that was posted on the Blue House Facebook account on Friday, Land Minister Kim Hyun-min made it clear that the government is targeting people who own multiple residences. Kim said she believed they were responsible for recent hikes in real estate prices.
“As buying homes with loans will be limited, [making such investments] won’t be as free as in the past,” Kim said in the video. “We are giving you until April next year, so if you’re not living in a residence you own, it would be best to sell it.”
She added that if people who own multiple residences want to keep them, they will need to register as a real estate leasing business. People who register as a business will be given financial and tax benefits.
The market is watching to see if the central bank joins the efforts by raising interest rates.
The Korean central bank has three monetary policy meetings this year that will determine the fate of the nation’s key interest rate. The first will be held at the end of this month and the other two will be held in October and November. The key interest rate has remained at 1.25 percent for the last 14 months since the BOK unexpectedly lowered the rate from 1.5 percent in June 2016. A raise in interest rates will depress demand for mortgages.
The central bank governor Lee Ju-yeol has hinted at the possibility of raising interest rates if the economy is strong. With various research institutions raising the outlook for economic growth, that chance is increased.
However, some worry that the tough real estate measures will hurt the domestic economy.
According to a study by Hyundai Research Institute, construction investment has played a vital role in the nation’s economy recently. It said last year construction investment contributed to raising the nation’s economic growth by 1.6 percentage points.
The study said while construction investment’s contribution to the economy in the second quarter dropped to 56 percent compared to 75 percent in the fourth quarter last year, its contribution has remained above 50 percent in the last five consecutive quarters.
If this contribution drops, the institute predicts roughly 15,000 people will lose their jobs every year over the next four years and economic growth will drop 0.5 percentage points.
The government has forecast this year’s economy to expand 3 percent.
But a Korea Development Institute research study announced Sunday said the nation’s economy could face slower growth due to the construction market, lowering this year’s forecast 0.3 percentage points from three months ago to 2.9 percent.
BY LEE HO-JEONG, HAN AE-RAN AND HWANG EUI-YOUNG [firstname.lastname@example.org]