[The Editors' Verdict] Real Estate Address Admits Failure to Curb Speculation

[Asia Economy Choi Il-kwon, Head of Economic Department] Last week’s government’s public address on real estate effectively formalized the fact that there will be no further measures from the current administration. With the regular National Assembly session in September and the presidential election in March next year approaching, and considering the political position at the end of the administration, expectations for new measures were not high. This address firmly put an end to such expectations. Unless there are unexpected external variables, the upward trend in real estate prices is likely to continue for the time being.

Since the address was effectively the government’s final message on real estate, it is reported that there were intense debates within the government. There was a strong opinion that if no measures were taken, the government would only face criticism. However, the view of senior officials that they could not remain silent amid soaring real estate prices, combined with tacit approval from the Blue House, ultimately led to the decision to ‘push through’ the address.

Looking at the results, the prevailing evaluation is that it would have been better not to do it at all. The address did not calm anxieties but was filled with threats telling the public to make their own choices wisely.

The critical mistake was the part stating, "You should make decisions carefully rather than chasing purchases out of anxiety." Since the early days of the current administration, senior government officials repeatedly sent messages that "you will regret buying a house," yet real estate prices soared uncontrollably. The sense of frustration was great as the government’s economic policy chief, who had witnessed this phenomenon, resorted again to appeals rather than calming anxieties through the public address. Right after the address, the competition rate for new apartment subscriptions in Sejong City exceeded 200 to 1, and the rate of increase in jeonse (long-term lease) prices hit the highest in a year. This only reaffirmed public distrust in the government.

The government failed to learn lessons from past cases. During the Roh Moo-hyun administration, a similar briefing was issued and faced backlash. In November 2006, the Blue House pointed out, "If you buy a house at an expensive price, you cannot avoid losses," while appealing, "Please trust government policies." However, during the administration, only non-homeowners who trusted the government suffered from the price surge. The then Minister of Land, Infrastructure and Transport’s remark that "buying a house means buying at a high price" is also a mirror image of the current government’s stance.

The growing instability in the real estate market is not the fault of the people hoping for ‘housing stability.’ From the beginning of the administration, the government was passive about expanding apartment supply and instead, policies aimed at cracking down on speculative forces increased anxiety. Although a tax bomb was imposed to curb speculation, the belief that ‘house prices will rise’ only caused a phenomenon of withholding listings. The right to request renewal of monthly rent contracts to protect tenants dried up the supply of rental housing. As house prices continued to soar, even those who were passive about purchasing, trusting only the government’s words, joined the buying ranks. The message that supply would decrease was ultimately created by the government. According to the Korea Real Estate Board’s apartment sales supply-demand index, since surpassing the baseline of 100 in June last year, it has not fallen below it for 14 consecutive months until last month. A score of 100 indicates equilibrium between supply and demand, so exceeding it means demand exceeds supply.

From the address, the government still believes that suppressing demand sentiment will resolve the rapid price surge. The government stated, "Supply is sufficient," and emphasized, "It is very important to control excessive expectations of profit." Despite having implemented 26 policies over the past four years to curb speculation, the government intends to maintain this direction. Conversely, this implies an admission that policy outcomes have been inadequate. The government conducted a full investigation of about 710,000 cases of illegal real transaction inflation but confirmed only 12 cases. Meanwhile, supply has been sluggish. In trying to catch a few speculative forces, the government ended up burning down only the thatched cottages over four years.