'Semiconductors, Household Debt, and LH' All Delayed to May... Economic Policies Postponed One After Another Amid Party-Government Leadership Vacancies

Household Debt Management Plan Expected in March Delayed from April to May Due to 'LH Scandal'
Discussions on Real Estate Tax Relief, Virtual Asset Regulations, and Real Estate Strategies Also Stalled

[Asia Economy Reporter Jang Sehee] Since the April 7 by-elections, the ruling party leadership has been virtually vacant, causing major economic policy announcements to be continuously postponed. While the market is rapidly changing by the minute, the ruling party and government keep repeating that they will hold swift consultations but have yet to make any decisions. There are growing concerns that increased policy uncertainty could negatively impact the economy.

According to economic ministries including the Ministry of Economy and Finance, Ministry of Trade, Industry and Energy, Ministry of Land, Infrastructure and Transport, and Financial Services Commission on the 23rd, schedules for household debt management measures, Korea Land and Housing Corporation (LH) reform plans, easing of real estate regulations such as comprehensive real estate tax and property tax, and the K-semiconductor belt strategy are mostly being postponed from their original announcement dates to after the ruling party leader is elected on May 2. The household debt management plan was initially scheduled for March but was delayed to April due to the 'LH scandal,' and then postponed again to May after the party leadership resigned over the by-election defeat. The LH reform plan was supposed to be announced by former Prime Minister Chung Sye-kyun between late March and early April, but this was also delayed following his resignation. Urgent issues such as real estate tax relief, virtual asset regulations, and semiconductor strategies are stuck in discussions.

Some policies remain unsettled within the ruling party. It is reported that the party and government agreed to ease financial regulations for some actual borrowers, such as relaxing loan restrictions, but there are still significant differences in views among the candidates for party leader. Candidate Song Young-gil stated, "We will expand the loan-to-value ratio (LTV) to 90% for the homeless," whereas candidate Hong Young-pyo took the opposite stance, saying, "If LTV is relaxed to 90%, a real estate price surge is inevitable." This means that policies could change completely depending on who becomes party leader. The absence of policy decisions is leading to market instability. Last week, the increase in apartment prices in Seoul grew again after 10 weeks. During the first week of this month, when the by-election took place, the rise slowed to 0.05%, but it steepened in the second week. A government official said, "As sale prices rise again, the real estate market is very unstable," adding, "There is growing anticipation for easing reconstruction regulations."

A government official said, "Real estate policy involves reversing previously announced tax increases, so the party is taking the lead," and "As the ruling party's influence grows, the measures could change completely depending on who becomes party leader."

Within the government, the prime minister's position is also in an acting capacity, making high-level coordination between the party and government difficult. A government official stated, "Each issue has a responsible ministry, but the prime minister ultimately goes through a process of coordinating with the party."

Increased policy uncertainty inevitably has negative effects on the economy. Professor Kim So-young of Seoul National University’s Department of Economics said, "Whether to buy or sell a house depends on the method of easing the comprehensive real estate tax." Regarding the semiconductor strategy, she added, "Specific tax benefits need to be announced to allow investment plans to be made accordingly," and "The current situation prevents economic agents from making any decisions." Professor Kim Sang-bong of Hansung University’s Department of Economics also pointed out, "Since the ruling party is leading most economic policies, there will effectively be an administrative vacuum for about two weeks," and "The market is changing by the minute, but policy alternatives are not being made promptly."