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[Market Close-up] New real estate policy receives mixed reviews

Seoul I’Park Mall shopping complex in Yongsan, central Seoul (Hyundai Development Company)
Seoul I’Park Mall shopping complex in Yongsan, central Seoul (Hyundai Development Company)

A set of new real estate policy measures aimed at turning public land in Seoul into massive housing complexes is designed to resolve the supply shortage in the capital city, but experts say it may not be enough to cool down the heated property market.

According to the new policy package announced Wednesday, the government will supply 70,000 new housing units in Seoul, including 8,000 residential units in Yongsan and 250,000 in the surrounding areas.

It is the left-leaning Moon Jae-in government’s 20th policy package intended to curb rising property prices. For the past three years, previous packages have introduced restrictions on mortgages and hefty taxes on multi-homeowners.

This recent supply-centered policy package shows a good understanding of what the market needs, the experts said, but will fall short of what is necessary to rein in the property market.

“The planned supply of 8,000 units in central Seoul will help address the shortage issue to some extent,” said Ham Young-jin, an analyst from property platform operator Zigbang.

“The problem is the new development plan misses some crucial elements, such as a large commercial district and high-end residential complexes, which were promised by previous governments years ago,” the analyst added.

The impact of the development plan for the Yongsan area will be limited as the apartment complexes that will be built in the area will consist mostly of small and midsize units -- not enough to shift demand away from the posh Gangnam area, she explained.

Some critics also said the number of housing units that will be built as a result of the government’s new development policy is not enough to meet demand in Seoul.

“The government’s plan to supply 70,000 units in the coming years is actually not enough to resolve the housing supply shortage entirely,” said Kwon Dae-jung, a real estate professor at Myongji University, adding that “it will take years to complete the supply plan.”

Considering the annual supply of some 40,000 new apartments in Seoul, the 70,000 units planned by the government over several years are underwhelming, according to experts.

Calling the latest policy package “a nice try,” Shim Kyo-eon, a Konkuk University professor, said there should be much more housing in the city.

According to the new property policy, the government will try to kick-start delayed or halted redevelopment plans in the city by giving incentives and relaxing regulations while zoning those areas to encourage more housing developments. In the special zone, public rental houses should account for 20 percent of the entire supply, among other conditions. The incentives and deregulatory steps include permission to build taller buildings than what is allowed under existing laws, and exemptions from price ceilings on new apartments.

“Redevelopment plans, mostly those of small-scale ones in low-end residential areas, have been struggling due to low profitability, but they could pick up pace thanks to the government’s active involvement,” Kim Gyu-jeong, an analyst from NH Investment & Securities, said.