Widening gap of home prices left untouched

The home price gap between the affluent Gangnam area in southern Seoul and outside Gangnam is widening but government officials are finding it hard to come up with new measures to reduce the gap.

Data by real estate consulting company Budongsan 114 showed that the home prices of Seocho-gu and Gangnam-gu in Seoul have risen 5.32 percent and 2.86 percent since July 2009, while Yongin and Ilsan saw an anemic 0.77 and 0.3 percent increase in home prices, respectively, during the same period.

Even within Seoul, there has been a large gap between the three affluent Gangnam districts and other areas of Seoul, according to data by KB Kookmin Bank Research Institute.

While Seocho-gu, Songpa-gu and Gangnam-gu showed the highest growth of apartment prices with 1.1 percent, 0.5 percent and 0.4 percent growth from Dec. 28 to Feb. 1, Gangseo-gu, Eunpyeong-gu, Nowon-gu and Dobong-gu showed 0 percent growth, the institute`s data showed.

The widening gap of home prices makes it difficult for policymakers to come up with one-size-fits-all real estate policy.



If the government tightens property regulation again, it might kill the nascent recovery momentum of the construction industry. If it uses real estate boosting measures, it might bring another asset bubble.

An unnamed Land Ministry official was quoted by the Yonhap news agency as saying that the ministry will consult with the Finance Ministry to review whether to prolong the capital gains tax cut scheme that was temporarily offered from early last year to Feb. 11.

However, a Finance Ministry official denied the report.

"Basically, we are not reviewing any additional measure for the real estate market now," said Lee Yong-suk, director of the real estate policy team at the Finance Ministry.

His comment came as builders recently voiced for a continuing of the capital gains tax cut scheme that ended as of Feb. 11 and easing of home-backed lending rules, amid a slump in home demand outside Seoul.

However, Lee said the government will not consider changing policies.

"Considering that the central bank is likely to raise interest rates sometime this year, interest burdens on households will become heavier. So, we will maintain our stance on keeping financial institutions` household debts in check," Lee said.

He was referring to the renewed rule last year that tightened banks` lending rules due to mounting household debts.

In the wake of rapid price hikes in the affluent three Gangnam districts in Seoul and some parts in Gyeonggi Province, the Financial Services Commission on July 6 strengthened rules on home-backed loans by lowering the loan-to-value ratio to 50 percent in Seoul`s metropolitan area from the previous 60 percent.

The overall real estate market will experience a slump in the first half with the capital gains tax cut ending and possible rise of interest rates, said Kim Hyun-ah, a research fellow of the Construction Economy Research Institute of Korea.

"With the scrapped scheme of capital gains tax cut and the gloomier global economic outlook, the real estate market is likely to suffer a setback in the first half and the slump will be slightly more serious than we had earlier expected," Kim said.

"Even if home prices go up in the second half, it will take some time for construction companies to see actual profits," she said.

(yoonmi@heraldm.com)



By Kim Yoon-mi