No hard landing for the real estate market

The government has removed many of past restrictions to curb real estate speculation. Much of the outer capital areas — all of the Gyeonggi province except for Gwacheon and Hanam cities and some areas of Seongnam city — and Incheon and Sejong cities — have become freed from tough regulations. Restrictions remain intact for Seoul. The lifting has been incrementally made since July and September. The removal of speculation watch automatically eases most restrictions on loans, taxes and new apartment subscriptions. The government has been rolling back restrictions on the real estate market.

Loan regulations for first-time home buyers will be eased, and loan guarantees for unsold apartments also will be widened. But the debt-to-service ratio determining the new loan allowance based on household income won’t be changed to restrict new loans for people without affordability. Authorities aim to keep watch on household debt still twice the GDP while easing conditions for first-time home buyers. The government will also release measures to rationalize the housing appraisal value to reflect the fall in prices, along with eased safety guidelines for permitting reconstruction of aged residential buildings.

The housing market has slumped to a concerning extent. Trade has been thinned to unprecedented levels due to price difference between the sellers and buyers. Housing prices are tumbling from rapid rises in interest rates and consumer prices, and an economic downturn. Few offerings find buyers unless they are sold at fire-sale prices. According to the Ministry of Land, Infrastructure and Transport, housing trade averaged 46,000 units per month from January to September this year, sharply below the monthly average of 79,000 units over the past 15 years.

Rent prices also have been nosediving in contrast to two years ago when rent prices skyrocketed after the passage of new tenant rights bills. New apartment offerings in some parts of Seoul and in most of the outer capital region and other areas have been undersubscribed.

Some are warning of grave consequences from hard-landing of the property market. Regulations placed during the heated housing market cannot be effective when market conditions turn. They should be lifted in a controlled pace and scope so as not to upset the housing market further.

Most of the easing was possible within the government ability. The political sector must hasten discussions on property tax code revision. The code should be revised based on the current market conditions — and away from the punitive taxing under the Moon Jae-in administration. The National Assembly has yet to begin a review on the bill. The majority opposition party must address the issue.