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Real estate market tenses up ahead of upcoming price regulations

Tension built up in Seoul’s housing market on Sunday, a day ahead of a scheduled government announcement about details of a price ceiling system for apartment complexes in key bubble-prone areas.

The forthcoming actions, intended to stabilize the overheated real estate market and discourage speculation, are set to play out amid uncertain economic conditions aggravated by US-China economic tensions and South Korea-Japan strife.

According to major local real estate industry trackers including Real Estate 114, the average price of Seoul apartments climbed 0.04 percent last week from the previous week.

That indicates an uptrend for nine weeks straight since apartment prices rebounded in mid-June, but the pace has slowed down considerably from the 0.08-0.10 percent range observed throughout July.

The slowdown was especially conspicuous in the most expensive districts of the capital city -- Gangdong-gu, Songpa-gu, Seocho-gu and Gangnam-gu. All four districts saw their on-week rates of increase stalled at almost zero percent, with specific figures ranging from 0.01 percent to 0.04 percent, data showed.

An apartment complex in Songpa-gu, eastern Seoul. (Yonhap)
An apartment complex in Songpa-gu, eastern Seoul. (Yonhap)

The key factor inhibiting apartment price hikes was apparently the government’s recent decision to apply a new price ceiling.

Last week, the Ministry of Land, Infrastructure and Transport said it would announce on Monday morning a revised plan limiting the maximum price of an apartment. In doing so it dismissed mounting rumors that Seoul might choose to delay the implementation of its real estate regulations in response to external circumstances weighing heavily on the national economy.

Last Monday, the US Treasury Department designated China as a currency manipulator, notching up the prolonged trade war between the world’s two largest economies. Earlier, Japan excluded Korea from its list of preferential trade partners, worsening the social-economic hostility between the two East Asian states.

In light of the uncertainties, homeowners and prospective buyers are likely to postpone their actions until after the government makes its announcement.

The system of price ceilings for apartment complexes was introduced in 2005, during the tenure of progressive former President Roh Moo-hyun. First applied to public housing sites, it was later expanded to private sites, but was not very effective in curbing housing prices.

Last month, Land Minister Kim Hyun-mee said that the government would revive the system for private housing sites.

The key points of interest concerning the upcoming announcement are whether the government will impose price restrictions in specific bubble-prone areas of Seoul, and how it will accurately assess the rate of increase for housing prices.

“We cannot exclude the possibility of regulations (that are stronger than general market expectations),” said an official with Real Estate 114.

“With the rising level of uncertainties in the financial market, it appears that the imminent policy announcement will put the brakes on housing price hikes for a while.”

By Bae Hyun-jung (