Real estate nightmarePrice control of new apartments in so-called hot zones to stamp out speculative forces has caused inevitable balloon effects. The tender for 187 unit apartment offerings in Singil-dong, western Seoul, for first-round candidates drew 21,367 bidders, meaning the odds of winning the draw was 114 against one. The popular 378-square-meter (4069-square-foot) units drew a competition ratio of 712 to one. The lack of new supplies due to the price cap has channeled speculative as well as practical demand to swell over other restricted offerings. Singil-dong does not fall under the price cap regulation. The auction for a new offering in Daechi-dong in Gangnam District, southern Seoul, drew a competition ratio of 212 to one due to frenzied demand for limited housing in Gangnam. The bid ratio for apartment offerings in Seoul averaged 14 to one from January to July, but the ratio jumped to 77 to one after the price ceiling was announced in August.
Prices have shot up. Rent and sale prices of apartments in Seoul have been in an upward spiral for 24 weeks. Actual transaction prices over apartments in Seoul soared 40 percent over the last two and a half years under the Moon Jae-in administration, the biggest jump among 20 major cities around the world. The government has implemented real estate measures 17 times. President Moon boasted that he was proud of stabilizing real estate prices. It makes one wonder what data his aides have been feeding him.
The announcement to eliminate elite high schools also fanned real estate prices in Seoul districts traditionally famous for good schooling.
All these measures have enriched Blue House aides. Former Blue House Policy Chief Jang Ha-sung’s apartment in Jamsil, southern Seoul, appreciated by 1.07 billion won ($910,000), and the Gwacheon, Gyeonggi, apartment of his successor Kim Soo-hyun appreciated by 1.04 billion. Former presidential secretary Kim Eui-kyeom also pocketed 800 million won.
The real estate measures under the administration were bound to flop. They neglected the fundamental market principles of supply and demand and were entirely regulatory, bombarding the real estate rich with heavy taxes. Landlords clung onto their assets in the belief that prices could go higher than taxes. Price stability will never happen under the current conditions. Instead of trying to control prices, authorities should increase supply. Former President Lee Myung-bak helped bring down prices in Seoul by building apartment complexes around Gangnam.
When upping ownership tax, authorities should have pushed down the transaction tax to facilitate asset sales. Measures should consider not just easing the real estate market, but also aiding the overall economy. Without such a grand picture, no measures can succeed.