House Price Growth Barely Slows... Is 'Gonggikja Speculation' Holding It Back?

Seoul Apartment Price Increase Narrows... Impact of 2·4 Measures
Housing Price Rise Slows, But Public Officials Face Speculation Backlash
Public Opinion Worsens, Trust in Housing Policy Hits Bottom
Potential for Wider Fallout Depending on Future Investigation Results

Saplings are planted on land near the recycling facility in Gwarim-dong, Siheung-si, Gyeonggi-do, where allegations of speculation by LH employees have been raised. (Photo by Yonhap News)

[Asia Economy Reporter Moon Jiwon] Following the government's announcement of the February 4 supply plan, the rate of increase in apartment prices in Seoul has slightly slowed. This is interpreted as a result of a pause in buying demand due to the government's successive supply expansion policies, such as the development of new towns in the suburbs of Seoul.

However, recent controversies over pre-speculation by employees of the Korea Land and Housing Corporation (LH) in new towns have poured cold water on the atmosphere of housing price stabilization. If additional cases of speculation by public officials are discovered during subsequent investigations or if public opinion continues to worsen, there is a high possibility that the government's follow-up supply policies will also face setbacks.

According to the weekly apartment price trends from the Korea Real Estate Board on the 6th, apartment prices in Seoul rose by 0.07% this week, narrowing from 0.08% the previous week. The rate of increase in Seoul apartment prices rose to 0.10% in the first week of last month but has been decreasing almost every week since the announcement of the February 4 plan.

The Korea Real Estate Board analyzed, "Following the announcement of new housing sites such as Gwangmyeong-Siheung after the February 4 plan, expectations grew due to the concretization of supply measures," adding, "The rise in U.S. Treasury yields led to a decrease in buying demand, resulting in a reduced rate of increase."

After the government confirmed the Gwangmyeong-Siheung district, which is 4.3 times the size of Yeouido, as the sixth 3rd phase new town, some expectations spread that future apartment demand within Seoul would be dispersed, potentially slowing the rise in housing prices in the metropolitan area.

Yoon Sung-won, the first vice minister of the Ministry of Land, Infrastructure and Transport, expressed confidence at the end of last month, saying, "The Gwangmyeong-Siheung district is adjacent to Guro-gu in Seoul and will be connected by as many as six railway lines, so it is expected to absorb demand from areas like Gangnam."

Jang Chung-mo, LH Vice President, along with LH officials, is offering a public apology on the 4th regarding allegations of employees' speculative investment in new towns. (Photo by LH) [Image source=Yonhap News]

However, as suspicions have spread that LH employees engaged in pre-speculation worth billions of won using insider information before the Gwangmyeong-Siheung district was designated as a 3rd phase new town, the credibility and momentum of government policies have significantly declined.

The government has formed a joint investigation team led by the Prime Minister's Office to investigate speculation allegations involving public officials from LH, the Ministry of Land, Infrastructure and Transport, and related local governments regarding the 3rd phase new towns.

The investigation is being conducted by checking personal information of public officials from the Ministry of Land and their spouses and direct relatives (parents and children) through the land transaction electronic network operated by the Korea Real Estate Board. Including public officials and their families, the investigation targets approximately 50,000 people, but confirmation of land transactions could be completed as early as next week.

If the investigation reveals that a large number of public officials were involved in speculation in new towns, large-scale investigations and widespread public criticism are expected. Depending on the circumstances, the investigation area and targets may also be expanded.

On the 4th, Minister of Land, Infrastructure and Transport Byun Chang-heum held an emergency briefing at the Government Seoul Office, emphasizing that the suspicions would be thoroughly investigated and that follow-up measures according to the February 4 plan would proceed without disruption. However, concerns have been raised that voices from local residents could act as a variable in the market.

In fact, organizations such as the Lawyers for a Democratic Society (Minbyun), which exposed the current suspicions, are reportedly receiving similar reports of speculation allegations.

Regardless of the results of the first investigation next week, it is highly likely that criticism surrounding the government's housing policy will continue for some time. Although the government has formed a joint investigation team to uncover the truth, criticism has arisen that the Ministry of Land, which is the main subject of the investigation, is conducting the preliminary investigation, leading to accusations of a "self-investigation."