[Asia Exclusive] "Only tightening to control house prices... Need to release regulations and present supply measures"

Interview with Park Jae-hong, President of the Korea Housing Construction Association

Excluding Speculative Areas, Revitalization Measures Also Needed
Polarization of Housing Prices in the Capital Region and Provinces Intensifies
Risk of Chain Bankruptcies in Local Housing Industry
Urgent Measures Needed for Unsold Housing Purchase and Tax Support

Park Jae-hong, President of the Korea Housing Construction Association, is being interviewed on the 14th at the Korea Housing Construction Association in Yeouido, Seoul. Photo by Kang Jin-hyung aymsdream@

[Interview = Asia Economy Jung Doohwan, Head of Construction and Real Estate Department; Summary = Reporter Moon Jewon] "Except for some areas with speculation concerns, activation policies are also necessary, but the government seems to have only one policy goal of stabilizing the real estate market and continues to impose comprehensive regulations. For economic vitality and the stability of ordinary people's lives, the government should minimize intervention in the private housing market and support the market to function normally."

Park Jaehong, Chairman of the Korea Housing Builders Association (64), leading about 7,600 mid-sized and small housing construction companies, has been busy for two months since his inauguration last December, commuting between the association office in Yeouido, Seoul, and his business in Gwangju Metropolitan City, as well as visiting branches nationwide to listen to voices from the field.

He is particularly uneasy about the reality in the provinces. While housing markets are booming in Seoul and other metropolitan areas, as well as Daegu, Daejeon, and Gwangju Metropolitan Cities, regions suffering from economic downturns such as Ulsan and Pohang are facing worsening conditions for housing projects. "Since companies are struggling, money does not circulate, and cities that have grown relying on companies inevitably face difficulties," he explains.

Therefore, Chairman Park believes that simply tightening the housing market, which is the foundation of the bottom economy, amid overall economic difficulties will hardly produce effective results. Instead of imposing high-intensity regulatory policies whenever price instability appears in specific areas, mid- to long-term supply measures should accompany efforts to stabilize the market.

On the 14th, at the Housing Construction Hall in Yeouido, Seoul, we met Chairman Park to hear his evaluation of the government's real estate market stabilization measures and the current issues facing the housing construction industry.

-Since the announcement of the December 16 real estate measures, prices in the Gangnam area have partly turned downward, but prices in Suwon, Yongin, and Seongnam (so-called Su-Yong-Seong) have surged due to the 'balloon effect.' How do you evaluate the government's real estate measures?

▲Instead of only continuing regulations, the government should consider increasing supply. Especially in Seoul, if redevelopment and reconstruction regulations continue, the imbalance between supply and demand will worsen in the mid to long term. About 80% of Seoul's supply depends on redevelopment projects, so if these are restricted to control prices, problems naturally arise. It is urgent to proactively ease redevelopment regulations.

-What do you think is the fundamental reason that housing prices continue to rise despite the government's strong regulations?

▲Seventy percent of Korea's land is forestland. The remaining 30% includes factory sites, commercial land, and residential land, but land where apartments can be supplied is limited to second and third-class general residential areas. Land is running out. From a developer's perspective, they have to buy land at higher prices to proceed with projects. In the past, land costs accounted for about 30% of total project costs, but now it's around 50%. This proportion is even higher in Seoul and the metropolitan area. To develop a single complex, developers must negotiate with about 150 to 200 landowners. Negotiations often push land acquisition costs far beyond initial estimates. Because housing projects are conducted on limited land, rising land costs naturally lead to higher apartment prices.

-It seems realistically difficult to increase land supply. What alternatives do you suggest?

▲Green areas and natural conservation zones should remain untouched, but regulations on other land-use zones should be eased to increase housing supply. Also, floor area ratio (the ratio of building floor area to land area) should be raised. As land prices rise, relaxing floor area ratios allows more households per complex, which can help stabilize prices.

-The government aims to expand supply through rental apartments. What do you think is lacking in this approach?

▲Not only public rental housing but also private rental housing, which many mid-sized construction companies handle, should have its system improved and be revitalized. The government's role is to provide housing welfare by supplying stable housing for low-income groups. Mid-sized and small construction companies should handle rental apartments for the middle class, and large corporations should take on the higher-end market. Increasing low-income rental supply does not stabilize prices in the Gangnam area.

-What is the housing market situation in the provinces? There seems to be a big difference by region. What is the reason?

▲I am concerned about that. Gyeonggi Province still sees steady housing demand due to continuous population inflow, but provinces are experiencing population decline and lack industrial support. Industrial hubs like Changwon, Geoje, Ulsan, and Pohang are not doing well. Factories used to operate based on labor, but now automation has increased, causing population outflow. Housing consumption requires people, so this situation could lead to serious stagnation.

-Despite the economic downturn, housing prices in provincial large cities like Daegu, Daejeon, and Gwangju are rising due to regulatory balloon effects, aren't they?

▲Because regulations focus on the metropolitan area, funds flow to less regulated areas. In provinces, initial sales may be good, but there is a risk of unsold units at completion. Many apartment buyers in provinces are outsiders from Seoul and other areas. Ultimately, local residents must handle the apartments, and if they cannot sell them, problems arise.

-What policies are needed to resolve the polarization of housing prices between the metropolitan area and provinces?

▲While everyone focuses only on Seoul's housing prices, provincial housing markets are rapidly declining outside our attention. Voices warn of worst-case scenarios like chain bankruptcies in local housing industries due to increasing unsold units. Experts suggest differentiated housing policies for provinces compared to Seoul and the metropolitan area. Support such as re-implementing Housing and Urban Guarantee Corporation (HUG)'s repurchase of unsold units, temporary capital gains tax reductions on provincial unsold units, and reductions in acquisition and transaction taxes are necessary.

-Although the housing industry's economic contribution may be lower than in the past, its employment creation effect remains significant. What impact does the housing construction industry's slump have industrially?

▲No industry affects employment as much as construction. Usually, building 300 to 500 apartment units at a site employs 200 to 300 people locally. Considering a family of four, that's supporting about 1,000 people. The construction industry acts like capillaries in the economy in the shortest time. Especially for apartments, materials are as important as labor. If local production plants operate actively, other industries linked to the housing market also thrive.

-Due to a shortage of projects, large construction companies are actively entering provinces. The concentration of large corporate brands in redevelopment and reconstruction projects is intensifying in the metropolitan area. Institutional improvements seem necessary.

▲In the past, large construction companies only handled projects with 300 to 500 units or more, but now that is no longer the case. This makes provincial housing construction industries struggle. Recently, large companies create subsidiaries that win orders under the large corporate brand. Large corporations have capital, technology, and organization, so they should expand overseas markets. Regional companies need incentives such as higher floor area ratios.

-You have nearly 40 years of experience in housing projects. What has been the most difficult aspect?

▲From a developer's perspective, the approval process takes too long. Various approvals for finance, data, experiments, environment, fire safety, etc., must be resolved separately, causing administrative waste, and speeds vary greatly by local government. Reviews related to architecture, civil engineering, and urban planning should be conducted together with uniform standards. To help with time-consuming land acquisition, the government should mediate appropriate market prices.

-The Housing Builders Association has been promoting housing condition improvement projects for national merit recipients for 27 years. What are your future plans for social contribution activities related to housing?

▲Despite the difficult management environment due to the economic downturn, the association has supported housing condition improvements for national merit recipients since 1994. So far, about 19 billion won has been invested to repair 1,805 old houses free of charge. Additionally, projects supporting fire extinguishers for vulnerable groups, sponsoring social welfare facilities, and scholarships for independence merit recipients are actively underway. We will continue to discover new social contribution projects and fulfill our social responsibilities more faithfully.

Interview = Jung Doohwan, Head of Construction and Real Estate Department

Summary = Reporter Moon Jewon