The author is a columnist of the JoongAng Ilbo.
In his New Year’s press conference on Jan. 7, President Moon Jae-in vowed to “normalize” our overheated real estate market. His tone differed from the past. The past measures over the last two years were, in fact, just “measures.” The government tried to slow — or stop — the runaway housing prices. But this time, it is poised to reverse the trend. Moon declared a “war against speculation.” The language was belligerent and determined, smelling of political design.
The so-called war with speculation was aimed straight at apartments in the posh districts in Gangnam in southern Seoul. Moon stressed the need for “normalization” in some regions where housing prices have soared. Home prices in Seoul gained 13.5 percent since Moon took office in May 2017. The prices elsewhere fell. During the same period, prices of apartments in Gangnam rose more than 50 percent. An 84-square-meter AcroRiver Park apartment unit in Banpo, Seocho-gu, which used to be valued at 2.2 billion won ($1.9 million) has gone up 54 percent to 3.4 billion won.
The campaign has started ahead of the April 15 general election. A leftist government usually regards the real estate market in a political context. Former presidential policy chief Kim Soo-hyun counted votes with a political calculator: “Your are a conservative if you own a home, and a liberal if not.” A battle with Gangnam may cost conservative votes — the 1 percent — and win the other 99 percent. It is a typical populist measurement.
The market remains unfazed. Over 1,500 trillion won is in liquidity in hunt for profit. The government this year will have to pay out 45 trillion won to landlords to compensate for the handover of properties set for suburban development around the capital. Various development projects ahead of the parliamentary election —and low interest rates — also fuel the market. Supply is limited. In economic theory, housing prices cannot be sustained at the current level, not to mention become “normalized.”
No government can beat the market — and also no market can entirely prevail over the government. There are ample means the government can use to stomp all over the market. The Blue House vowed to “employ all possible means.” It could squeeze financing and track the capital flow to require each person to gain permission for every real estate transaction. A four percent property tax could eat up the value of a property in 25 years.
The so-called “invincible Gangnam” myth could break. The legend was bred by the belief that regulations would ease when a conservative administration takes power. But now, there is little possibility of a conservative win. Even if the ruling power is replaced, regulations once in place are not easily removed.
Former conservative President Lee Myung-bak vowed to remove the property tax but could not. Then finance minister Kang Man-soo called the tax imposed by the former government under liberal President Roh Moo-hyun a “byproduct of envy,” but it stayed intact as the ruling party also feared loss of votes.
Wealth inequality has deepened over the past decade. Populism based on hatred of owners of Gangnam apartments has worsened. There is no voice of reason in the government. Deputy Prime Minister Hong Nam-ki leads the anti-market campaign. They care little about the market.
The result of the war is obvious. The have-nots would be most hurt. If they are likened to stocks, Gangnam apartments are super bluechips. They are the first to go up and last to fall. To bring down Gangnam apartment prices by more than 40 percent, the prices of multiple homes in northern Seoul and outside the capital will tumble. The housing market will be slaughtered, and ordinary people will find no homes to move into.
When prices jumped under Roh, real estate deals came to a standstill. The freeze could last longer this time as the government is even more stubborn and obsessive. When coupled with the deflationary signs, the housing market could be wiped out. The wise would seek an exit out of the country before it’s too late.
JoongAng Ilbo, Jan. 16, Page 34