Careful deregulation is needed

If one rushes to turn up the hot tap, one would scream after a painful scalding. “The fool in the shower” is a metaphor attributed to Nobel laureate Milton Friedman, who likened a central bank that acted too forcefully to a fool in the shower. An immediate response can do more harm than good as markets react sensitively.

The real estate market is waking up from a stalemate from the beginning of this year amid signs of President-elect Yoon Suk-yeol moving to act on his campaign promise to undo the real estate measures of the Moon Jae-in administration primarily based on controlling demand. A 76.79-square-meter Eunma Apartment unit in Gangnam, southern Seoul has been offered at 2.77 billion won ($2.3 million), adding 200 million won from last sale. Apartment prices in some other popular neighborhoods in Seoul have shot up to historic highs.

Yoon’s transition committee has asked the government to hold off levying a surcharge on capital gains tax for multi-home owners for a year to help carry out the president-elect’s campaign promise to return property taxation to pre-Moon levels. If the government refuses, the incoming government plans to change enforcement ordinances, which do not require legislative approval.

It has been widely expected for the new conservative administration to ease real estate measures. The over-the-top jump in housing prices despite 28 sets of regulatory actions has been cited as the biggest folly of the Moon administration. But rash easing ahead of the local elections on June 1 should be avoided. An exhibitionist action without thorough study could add fuel to the sensitive housing market.

Real estate measures must move on principle and consistency so as not to breed speculative dangers. First of all, the new administration needs to lower the ownership tax and sales tax. But current real estate tax code has become overly complicated. The current administration announced to reflect last year’s appraisal value for taxation after appraisal value for multi-residential housing soared again this year. The transition committee has offered to lift capital gains surcharge on multi home owners, allow mortgage lending of up to 90 percent of the loan-to-value ratio and ease guidelines for permitting reconstruction of aged apartments.

At this rate, the real estate market could become extremely hot again. The transition committee must avoid being a fool in the shower on real estate actions. The committee must come up with a comprehensive roadmap if it does not want to upset the real estate market by rushing with loosening policies during the unstable period of rising interest rates.