[6·17 Real Estate Measures] "Historic-Level Regulations but Only a Stopgap... Balloon Effect Is Obvious"

Experts: "Expansion of Nationwide Regulations to Block Speculative Demand"
Concerns Over Real Buyers' Harm as Loans for Home Purchases Are Also Restricted
Industry: "No Solution to Supply Shortage, Limited Effectiveness"

[Asia Economy reporters Moon Jiwon and Lim Onyu] The real estate industry is shaken as the government unveiled the comprehensive 'June 17 Real Estate Measures,' which include expanding regulated areas and strengthening safety inspections for reconstruction. Experts believe that since the new measures contain a large number of high-intensity regulations, housing prices in the Seoul metropolitan area, which have soared significantly, may stabilize for the time being. However, many also predict that, as with the previous 20 or so failed regulations, another 'balloon effect' may occur, causing harm to actual homebuyers.

According to the real estate industry on the 17th, the government's 'Management Plan for Housing Market Stabilization' announced that morning is considered an unprecedented measure. The government significantly expanded speculative overheated districts, which were previously limited to Seoul and some local areas, to include Incheon and Daejeon, and designated most of the metropolitan area as adjusted target areas. Additionally, detailed regulations such as requiring reconstruction association members to reside for two years before purchasing an apartment are also strong.

Park Wongap, Senior Real Estate Specialist at KB Kookmin Bank, explained, "This is a high-intensity measure covering taxes, loans, and transactions to block corporate transactions and balloon effects in non-regulated areas. It is characterized by expanding the scope of regulated areas not only in Gangnam but also in Gyeonggi, Incheon, and local regions, representing a 'regional expansion of regulation' nationwide."

Yang Jiyoung, Director of Yang Jiyoung R&C Research Institute, said, "(The government measures) came out stronger than expected. They comprehensively expanded speculative overheated districts and adjusted target areas, and it is new to impose a residency obligation period in the reconstruction sector. Overall, the regulatory measures are strong."

The government introduced these regulations because, despite the December 16 real estate measures announced last year and the economic downturn caused by the novel coronavirus (COVID-19), housing prices in Seoul surged significantly, increasing market instability. Although the government's regulatory will is strong, the market has abundant liquidity, and expectations that housing supply will decrease have strengthened.

However, there are many negative opinions in the market that these are only temporary measures. Expanding regulated areas and tightening loan restrictions for home purchases may harm actual homebuyers. Jang Jaehyun, Head of Real Today, said, "The core is to tighten the money flow and tie the hands and feet of actual buyers. Only those with capital can buy houses, and actual buyers' ability to trade up is limited, which will exacerbate the rich-get-richer, poor-get-poorer phenomenon in housing."

Kim Hakryul, Director of Smart Tube Real Estate Research Institute, also analyzed, "Although all regulatory loopholes have been filled, this is only a short-term measure. Since it is not a fundamental solution, there is a high possibility that housing prices will rebound in the long term." He explained that blocking purchases by multi-homeowners and actual buyers will likely reduce jeonse (long-term lease) listings, which will inevitably push up both jeonse and sales prices.

Many analyses suggest that the effect will be limited because the fundamental causes of rising housing prices?liquidity and supply shortage?have not been resolved. Director Yang said, "Since expectations of (housing price) increases are still embedded, unless that part is curbed, it is difficult to stabilize housing prices in the long term. Because of policy resistance, balloon effects will appear in non-regulated areas or adjusted target areas with favorable conditions." She added, "This is the problem of 'whack-a-mole' style measures."

The government's strengthening of safety inspections, which are conditions for reconstruction projects, is also pointed out as potentially reducing supply and affecting housing price increases. The concentration of buying sentiment in Seoul and some metropolitan areas is largely due to anxiety about future supply shortages, and indiscriminately tightening reconstruction regulations may cause greater disruptions in housing supply and demand.

The 'balloon effect' caused by previous government real estate measures has made it difficult even for the middle class, who are actual buyers, to purchase mid-to-low priced complexes, and their hardships are expected to deepen. Due to successive base rate cuts, mortgage loan interest rates have fallen, and those who were hoping to buy their own homes may feel particularly deprived.

An official from a commercial bank said, "It remains to be seen how broad and strong the impact of additional regulations will be, but it is expected to limit the effects of interest rate cuts." Residents of areas newly designated as regulated, such as Cheongju in Chungbuk, are also increasingly protesting. A representative of real estate agency A in Cheongju said, "This area is still only half the price of Daejeon, but it is being lumped into the same adjusted target area because external investors, not actual buyers, are flocking here, which is too arbitrary."