President Moon Declares War on Speculation
Housing Transaction Permit System and More Await... Market Strongly Opposes 'Ultimate' Regulations
▲ Estimated official prices and property taxes of major apartment complexes in Seoul this year (Provided by the Ministry of Land, Infrastructure and Transport)
[Asia Economy Reporter Lee Chun-hee] The government is deliberating on stringent additional measures such as a housing transaction permit system, increases in official land prices and holding taxes, and lowering the threshold for prohibited mortgage loans. The proposals circulating among the political circles, government, and market represent the 'final boss' of regulations, surpassing the level of the 18 rounds of regulations announced so far. The mere mention of such regulations is already causing strong backlash in the market.
The most powerful additional regulation the government can currently consider is the real estate sales permit system. This system requires verification of the source of funds and screening of genuine demand before allowing transactions. Analysts suggest that if the government introduces the permit system, it is highly likely to target the Gangnam area, where prices have abnormally surged, as the first priority rather than applying it nationwide. This is because applying it nationwide could provoke strong opposition from ordinary citizens in provincial or non-regulated areas. A real estate expert said, "Since President Moon Jae-in said that 'strong measures will be continuously introduced,' there is a possibility that the government will introduce the housing transaction permit system, which could deliver the greatest shock to the market," adding, "If introduced, the housing transaction permit system will likely be limited to the Gangnam 3 districts."
In this regard, Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki emphasized at a joint briefing with related ministries on housing market stabilization held at the Seoul Government Complex on the 16th of last month, "We will scrutinize the market with a level of detail comparable to the housing transaction permit system."
Strengthening the tax system through increases in official land prices and holding taxes is also expected to materialize before the April general election. The announcement of the nationwide official apartment prices (draft) is scheduled for March. The Ministry of Land, Infrastructure and Transport (MOLIT) is reportedly conducting a final review on the scope and extent of official land price increases ahead of the March announcement. In December last year, MOLIT announced a 'Plan to Enhance the Reliability of Official Prices,' stating that it would focus on raising official prices for apartments valued at 900 million KRW or more this year. For homes priced over 3 billion KRW, it also pledged to raise the realization rate to 80% of market prices. Applying last year's realization rate of 69.2%, the official price of a 3 billion KRW apartment is expected to rise from 2.076 billion KRW in 2019 to 2.4 billion KRW this year, an increase of over 300 million KRW.
Besides this, MOLIT plans to raise the reflection rate of market prices in the official prices of all apartments from last year's average of 68.1% to 69.1% this year. The standard single-family house rate will increase from 53.0% to 53.6%, and the official land price for standard land will rise from 64.8% to 65.5%, respectively.
As comprehensive real estate tax rates continue to rise, this is interpreted as an effort to increase holding burdens through continuous official price hikes. An industry insider said, "However, even if holding burdens increase and more properties come onto the market, transactions will be difficult under the current situation where financing is tightly restricted," adding, "Since the government has expressed a negative stance on reducing transaction taxes and capital gains taxes for now, it will be hard to achieve effective market stabilization."
President Moon Jae-in is answering questions from the press at the 2020 New Year's press conference held at the Blue House's Yeongbingwan on the morning of the 14th. [Image source=Yonhap News]
The threshold for a complete ban on mortgage loans is also likely to be lowered from over 1.5 billion KRW to around 800 to 900 million KRW. This is seen as an attempt to prevent the balloon effect caused by the December 16 measures and the rise in jeonse (long-term deposit lease) prices. The day before, President Moon said, "There could be a balloon effect where prices of homes under 900 million KRW rise, or real estate sales demand shifts to jeonse demand causing jeonse prices to increase, or other unexpected effects that the policy anticipates," adding, "We will devise supplementary measures at any time," for the same reasons.
Regarding jeonse prices, the introduction of a rent ceiling system and a renewal right for lease contracts is expected. These two policies were pledges made by President Moon during his candidacy. Most of the proposed amendments to the Housing Lease Protection Act currently under review set the annual deposit increase limit at 5%. If the renewal right is introduced together, contract renewals could be guaranteed for up to four years.
Additionally, regulatory measures on redevelopment projects may emerge, such as extending the reconstruction period from the current 30 years to 40 years, coordinating the timing of relocation for reconstruction, or increasing the mandatory ratio of rental housing in redevelopment projects.
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