Gov’t targets prices in Gangnam

Tougher regulations on preconstruction sales targeting complexes awaiting redevelopment in Gangnam will go into effect as early as October.

The Ministry of Land, Infrastructure and Transport on Monday announced a new maximum cap on preconstruction sales of apartments built on privately-owned lands. Currently the maximum cap applies to apartments built on publicly-owned lands.

The ministry said it expects average preconstruction sale prices to fall to around 70 to 80 percent of their current market values.

According to the ministry, all areas that are designated by the government as being overheated will be subjected to the maximum cap on preconstruction sales prices.

Under current regulations, the government can place a maximum limit on preconstruction sales prices if one of three conditions is met: the average preconstruction sales prices of the project’s surrounding areas rose at more than twice the consumer price index over the previous 12 month period, more than five bids are received for every apartment offered (or more than 100 if the apartment is smaller than 85 square meters [915 square feet]), or if transaction volumes for apartments are up more than 20 percent from a year earlier.

The government, however, did not disclose which regions would be affected by the maximum cap or the levels.

“Once the enforcement degree is enacted in October, we plan on making comprehensive decisions on the places and the time according to the market situation,” Lee Moon-ki, head of the Land Ministry’s housing and land office, said. “Unlike in the past when the regulation was applied unilaterally throughout the country [in 2007], this time, we plan to implement it selectively.”

The change will likely have a ripple effect on all apartment projects in Seoul.

Currently the government has designated as overheated 31 areas including all 25 districts in Seoul as well as several areas in Gyeonggi, including Bundang, Seongnam and Gwacheon, as well as the administrative city Sejong.

Although the ministry official said the government is not targeting specific areas, many are speculating that Land Minister Kim Hyun-mee, who has been aggressively implementing policies that limit apartment prices from going up since the beginning of the Moon Jae-in administration, is targeting Gangnam, where major reconstruction projects are underway.

“If you look at recent housing patterns, major reconstruction projects in Gangnam have gone up such as Songpa and Secho,” said Lee. “And neighboring areas have also gone up.”

Once preconstruction apartment prices in these neighborhoods drop to a “rational” price, the prices of newly-built apartments will likely stabilize as well, Lee said.

If prices of these apartment projects and neighboring areas continue to go up, the government will investigate where the buyers get their money.

“The rise in preconstruction apartment sales affect neighboring housing prices, which only add to the burden of people who are trying to buy apartments that they plan on living in,” said Lee. “When the maximum cap was applied in 2007 and 2014, Seoul housing prices stabilized. But once it was liberalized in 2015, the market started to heat up.”

The ministry said capping preconstruction sales lowered the annual increase in apartment prices in Seoul by 1.1 percentage points.

According to the ministry, there are 66 projects amounting to over 68,000 households that are approved for redevelopment within Seoul.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]