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[News Focus] Will Korea return to apartment deregulation for stimulus?

A conceptual image of a terrace-type apartment complex in Hwaseong, Gyeonggi Province, which was built in September 2019 (Jungheung Construction)
A conceptual image of a terrace-type apartment complex in Hwaseong, Gyeonggi Province, which was built in September 2019 (Jungheung Construction)

SEJONG -- Over the past one or two months, many online commenters have raised the possibility that COVID-19 would pull down apartment prices in Seoul, pointing out that the Moon Jae-in administration had failed to do so.

Some likened the current situation to a decade ago, when the real estate market was hit by the 2008 global financial crisis after continuing to spiral in the mid-2000s.

Recent trading data showed that Seoul apartment prices stopped their 10-month continuous increase in the first week of April.

Given that prices skyrocketed to historic highs over the past three years, the price drop is quite negligible, especially when compared to the stock market. Nonetheless, more commenters predict the property market will ultimately be negatively affected by the feasibly extreme economic slowdown or possible recession.

“Many apartment complexes saw prices climb about 100 percent from 1 billion won ($809,000) to 2 billion won for a 76 square meters unit. Gangnam (in southern Seoul) apartment prices should be normalized at least below 1.5 billion won,” a commenter said. “A plunge is inevitable in the wake of the novel coronavirus disaster.”

In contrast, some – a seemingly smaller portion -- contested the assumption, citing the news that wealthier people are keeping an eye out for apartment units put on the market for urgent sale.

A real estate agent in Gyeonggi Province said more and more people with large cash piles are reportedly seeking to purchase apartments in the Gangnam area (Seoul’s Gangnam and Seocho, or plus Songpa districts) at prices that are 20 percent cheaper than in 2019.

“The government, by applying tough lending terms, has de facto blocked ordinary households from buying homes via mortgages in Seoul. So only those with cash capacity would enjoy the monopolistic competition in taking away a series of feasible urgent sales in the coming weeks or months.”

The result is mixed feelings in the market over whether to sell. While some are pursuing other investment targets like stocks by capitalizing on apartment trading gains worth 500 million won-1 billion won per unit, others still regard real estate as a safe haven, saying that Gangnam home prices would eventually overcome COVID-19 crisis.

One research analyst said a foreseeable point, despite the uncertainty, is that the Moon administration could unveil a stimulus package, in which the lending terms involving mortgages would drastically be eased.

“Irrespective of the coming apartment prices, the coronavirus-crisis has offered an excuse or necessity for the government to boost the economy via deregulation of the real estate market,” he said.

Given the next presidential election is scheduled for March 2022, the timing of deregulation could be the latter half of 2020 or the first half of 2021, under the assumption that the epidemic would stop spreading this year.

Both exports and consumption would sag continually, which means a limit in reinvigorating the economy by supplementary budgets.

In the past administrations, construction involving active apartment trading among households had been a quick solution whenever the economy faced crisis.

Simultaneously, stimulus via the construction sector had always brought about a variety of side effects such as speculation seeking huge capital gains and mounting mortgage debt held by ordinary households.

Meanwhile, President Moon has already lost support among most people on real estate policies. Criticism that he has failed to rein in housing prices could make stimulus in the sector politically burdensome,

According to a survey from Gallup Korea, conducted in December 2019, only 20 percent of the 1,000 surveyed said the incumbent administration “is doing well” in real estate policies. More than half (57 percent) expressed their skepticism in the segment.

Even among those who identified themselves as supporters of the ruling Democratic Party of Korea, the portion of disapproval of Moon’s property policies, 42 percent, outnumbered the approval, 33 percent.

A large portion of people criticize the government for fanning Seoul apartment prices by increasing housing supply in neighboring Gyeonggi Province, and for sternly restricting mortgage-based purchases of middle-income households in the capital. This has made some Seoul apartment complexes -- particularly those in Gangnam -- exclusive areas for wealthy, cash-holding traders.

By Kim Yon-se (kys@heraldcorp.com)
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