No footing on the ground
The author is national news editor of the JoongAng Ilbo.
“Live close to Seoul so as not to lose cultural refinement … My long-term plan is to find a residence within 4 kilometers [2.5 miles] of Seoul,” wrote Jung Yak-yong (1762-1836), better known by his penname Dasan, to his son while in exile. This was wise advice from the founder and teacher of shilhak (practical learning), which blossomed in the late 18th and early 19th century , and one of the greatest thinkers of the Joseon Dynasty.
Today, Dasan might have recommended living in Gangnam District in southern Seoul, known for its educational opportunities and, depending on one’s definition, “cultural refinement.” Having a good education can lead to a good career and success. Wealth can build up — and lead to an apartment in a good neighborhood. This is why most people, including high-level government officials, prefer residing in Gangnam. Tackling the sky-high prices of real estate in Gangnam should start from those undeniable facts.
There has been much talk about Kim Jo-won, the former senior presidential secretary for civil affairs who was replaced in a reshuffle earlier this week for allegedly refusing to sell one of his two apartments in Gangnam in defiance of a presidential order to dispose of extra homes. It can’t be easy for anyone to part with an expensive home in the most popular area in Seoul. The capital gains tax will be a whopper after selling it. Before criticizing Kim, the government needs to find practical ways to enable Blue House apparatchiks to dispose of their extra homes more easily.
Soon after Moon Jae-in’s inauguration, his administration encouraged multiple homeowners to register as rent business operators. The idea was supposed to make the rental market more transparent. Various incentives were given to homeowners for business registration. But they became targets for tax bombardment after a dramatic surge in apartment prices. The worst of all real estate failures under Moon was its breach of trust with registered rent operators. The market would no longer trust a government measure as it could be overturned at any time.
People won’t move to a new neighborhood just for the greenery. When demand is hot, the most effective solution is to provide supply. The government plans to raise the floor area ratio (FAR) to 500 percent and collect 90 percent of the profit gains from the extra space. But an apartment with greater FAR means less floor space and bigger density. Therefore, it would be best to accelerate current redevelopment projects instead of devising complicated new measures. Various types of taxes on capital gains are already in place.
The government also vowed to build homes for rent for the middle class. But the middle class wants to own, not rent. Homes costing over 1.5 billion won ($1.3 million) cannot be financed. Loan regulations are implemented to protect the financial health of banks. But these days they are entirely enforced to rein in real estate demand.
The government’s plan to abolish elite schools across the country will only encourage more people to live in Gangnam. Many will move to expensive rental units in Gangnam for the sake of their childens’ education. Instead of entirely scrapping special-purpose and other elite schools, they could be kept alive on the condition that they fill half their classrooms with students in the local education district.
Infrastructure also should be upgraded in areas other than Gangnam. Samseong-dong in Gangnam District will become home to a new landmark multi-center facility that will become the tallest skyscraper in the country and new headquarter for Hyundai Motor. Such extravagant facilities would help even out residential prices if they were put in Guro District, for instance, in outer Seoul.
To alleviate concentration around the capital, universities in provincial areas should be promoted. The hot potato issue of making Sejong City a full-fledged administrative capital also should be studied in a more farsighted context. Human and other resources could be drained out to channel into Seoul and Sejong instead of other regions.
On Monday, President Moon pledged to establish residential justice. He claimed housing prices were plateauing. The steep growth has slightly eased, but cannot be deemed stable. Although the cause of residential justice is important, reality should not be neglected. If reality is disregarded, there is no solution.
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