President Declares 'War on Speculation,' Blue House Unveils Measures Including Housing Transaction Permit System (Comprehensive)

President Moon Declares War on Speculation
Housing Transaction Permit System and More Awaiting... Market Strongly Opposes 'Ultimate Regulator'

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]

[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 prohibiting mortgage loans. The proposals circulating among the political circles, government, and market represent the 'ultimate' level of regulation, surpassing the 18 rounds of regulations announced so far. The mere mention of such regulations is already provoking strong backlash in the market.

The most powerful additional regulation the government can currently consider is the real estate transaction permit system. This system requires verification of the source of funds and screening of genuine demand before allowing transactions. The participatory government in 2003 discussed introducing a housing transaction permit system but eventually abandoned it due to public opposition, opting instead for a housing transaction reporting system as a compromise. Since then, whenever major measures were proposed, attention was focused on whether the permit system would be introduced, but it was scrapped due to public opinion viewing it as an unconstitutional idea that directly controls property rights. Being an ultra-stringent regulation, it inevitably faced significant resistance.

However, on the 15th, Kang Ki-jung, Senior Secretary for Political Affairs at the Blue House, mentioned in an interview with a CBS radio program, "I think our government should listen to the argument that we might need to introduce a transaction permit system," increasing the likelihood that the government will pull out the unprecedented permit card.

There is also analysis that if the government introduces the permit system, it is likely to target the Gangnam area, where prices have abnormally surged, as the first target rather than applying it nationwide. 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 he would continuously introduce strong measures, the government may introduce the housing transaction permit system, which would have the greatest shock effect on the market," adding, "If introduced, the permit system will likely be limited to the three Gangnam districts."

▲ Estimated official prices and holding taxes of major apartment complexes in Seoul this year (Provided by the Ministry of Land, Infrastructure and Transport)

Various other additional measures are also anticipated. On the same day, Kim Sang-jo, Chief of the Blue House Policy Office, emphasized in an interview with a KBS radio program, "I currently have all the policy options imaginable," and added, "It is not that we exhausted them on December 16 last year," indicating that additional measures can be introduced at any time.

First, strengthening the tax system through increases in official land prices and holding taxes is likely 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 is reportedly conducting final reviews on the scope and extent of official land price increases ahead of the March announcement. In December last year, the ministry 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 houses priced at 3 billion KRW or more, 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.

The ministry also plans to raise the market reflection rate of official prices for 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%.

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 difficult to achieve effective market stabilization."

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 curb the balloon effect and rising jeonse (long-term deposit lease) prices caused by the December 16 measures. In fact, Senior Secretary Kang said in a radio interview on the 15th, "We consider the real demand housing price not at 1.5 billion KRW but around 800 to 900 million KRW," adding, "If we approach it at around 900 million KRW, it is acceptable to lower the loan restriction."

President Moon also said the day before, "There could be a balloon effect where prices of houses under 900 million KRW rise, or real estate purchase demand shifts to jeonse demand, causing jeonse prices to increase, or other unexpected effects of the policy," and added, "We will prepare supplementary measures at any time," for the same reasons.

Regarding jeonse prices, the introduction of a rent ceiling system and the right to renew leases 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 include a 5% annual cap on deposit increases. If the right to renew leases is introduced together, contract renewals could be guaranteed for up to four years. On the 15th, the Justice Party also announced as part of its general election pledges that it would "expand the right to request contract renewal to nine years and implement a rent ceiling system at the inflation rate."

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.