[Presidential Election D-1 Month Pledge Analysis①-Real Estate] Whether Ruling or Opposition, At Least 2.5 Million Supply Within Term

Both Lee and Yoon Focus on Supply, Differences in Deregulation
Experts Say "Not Sure" About Supply Bomb Policy

[Asia Economy Reporter Baek Kyunghwan] The core of the real estate pledges by the ruling and opposition presidential candidates is supply and loan relaxation. On the 3rd, during the first TV debate, Lee Jae-myung, the Democratic Party candidate, described the Moon Jae-in administration's real estate policy as "a very flawed and insufficient policy." He implied that the current government's policy, which emphasized speculation suppression over supply, was mistaken. He pointed out the cause of failure, saying, "The demand was distorted due to supply shortage," and "It is highly likely because of the policy protecting rental business operators."

During the five years of the Moon Jae-in administration, Seoul housing prices doubled, and the pledges presented by the leading presidential candidates carry significant implications. Although some analyze that the temporary effect was due to comprehensive 'tightening of money flow' such as strengthened loan regulations and interest rate hikes, it is clear that the upward trend slowed down due to the late supply measures in the final stage of the administration.

As the problems of the current government have become starkly apparent, all the pledges made by this presidential election candidates to win public favor emphasize 'supply.' Both Lee Jae-myung and Yoon Seok-youl, the People Power Party candidate, promise to supply at least 2.5 million housing units during their terms. Lee adds an additional 610,000 units. This is interpreted as a strong intention to firmly convey the policy of expanding supply to the market, but real estate experts analyze that the feasibility is not high.

◆ Lee and Yoon at least 2.5 million... Securing volume through ‘site acquisition and deregulation’ = The 2.5 million units proposed by the two major party candidates nearly triple the total supply of the first-generation new towns (300,000 units) such as Bundang and Ilsan, and the second-generation new towns (600,000 units) such as Pangyo and Dongtan.

Looking at the details, the public land volume pledged by Lee includes 90,000 units around Gimpo Airport, 100,000 units on some sites of Yongsan Park and surrounding returned sites, 20,000 units on national and public lands such as Taereung, Hongneung, and Changdong, and 80,000 units through the undergrounding of Line 1. In Gyeonggi Province and Incheon, he plans to build an additional 280,000 units on top of the existing plan of 1.23 million units. The housing supplied on public land will increase from the existing 910,000 units to 1.11 million units by adding 200,000 units on new sites.

Through redevelopment of existing sites, he plans to supply a total of 410,000 units by adding 100,000 units through deregulation of redevelopment, reconstruction, and remodeling on top of the existing plan of 210,000 units, and 100,000 units through reconstruction of old permanent rental complexes. Additionally, he plans to activate private redevelopment projects including floor area ratio relaxation for the first-generation new towns.

Yoon promises a total of 2.5 million units. Of these, 500,000 units will be public-led, and 2 million units will be private-led. He plans to add 400,000 new housing units in Seoul and supply a total of 1.3 million units across the metropolitan area including first-generation new towns (Bundang, Ilsan, Jungdong, Pyeongchon, Sanbon).

He also unveiled housing products to enhance publicness. ‘Cost-price housing’ cheaper than market price, and ‘First home near station’ public sale housing. Cost-price housing refers to housing under 84㎡ of exclusive area sold at cost price, with the condition that if residents live for more than five years, they can sell it back to the state and receive over 70% of the capital gains. The goal is to supply 300,000 units, 60,000 units annually, prioritizing homeless youth. The ‘First home near station’ housing, developed on national and public lands near stations, is planned at 200,000 units. The total public housing volume is about 500,000 units combining cost-price housing and first home near station housing. The big difference is that Lee focuses on government-led public housing expansion, while Yoon focuses relatively on private-led supply.

People Party candidate Ahn Cheol-soo also presented a total supply volume. He stated 2.5 million units over five years and explained, "There will be little difference from other presidential candidates because it is a realistic number."

◆ Lee proposes new ‘Land Holding Tax’ vs Yoon reforms ‘Comprehensive Real Estate Tax’ = While the candidates share a similar supply policy, there are considerable differences in deregulation. Basically, they intend to lower transaction taxes such as capital gains tax and acquisition tax to a certain level to resolve the phenomenon of withheld listings, but Lee’s stance is thorough recovery of unearned income, while Yoon’s is tax reduction.

Lee’s representative pledge is the introduction of a new Land Holding Tax. It aims to recover unearned income from real estate and use it as a basic income fund by imposing a new land tax on landowners. Lee also hinted at renaming it as the ‘Land Profit Dividend System,’ but due to strong public opposition, whether it will be pursued remains to be seen.

Yoon promises a major reform of holding tax. He plans to revert official property prices to the 2020 level, integrate the comprehensive real estate tax and property tax, and postpone the heavy capital gains tax on multi-homeowners for at least two years. In particular, he plans to simplify the tax rate brackets to reduce acquisition tax burden. He also plans to exempt or apply a 1% acquisition tax rate only to first-time homebuyers. This process will be discussed through the ‘Real Estate Tax Normalization Task Force’ after the government is launched.

In the debate the day before, Lee’s correction of Yoon’s loan-to-value (LTV) ratio relaxation plan was accurate at 80%. Yoon has maintained an 80% LTV relaxation level for newlyweds and youth.

Currently, Ahn proposes raising real estate holding taxes like in the U.S. but lowering transaction taxes. The intention is to secure market listings by lowering transaction taxes such as capital gains tax to stabilize prices. Ahn said, "It takes a long time to supply new housing, but putting existing houses on the market can meet demand in the short term," and "If transaction taxes like capital gains tax are lowered and listings increase, housing prices can be controlled."

Sim Sang-jung, the Justice Party candidate, takes a tough stance with tax increases. She plans to impose heavy taxes on owners of more than one house, saying, "Heavy taxes will be imposed on capital gains, two homes per household will be subject to heavy taxation, and owners of three or more homes will be required to register as rental business operators."

◆ Unanimous call for ‘floor area ratio increase’... Different interpretations of the Lease 3 Laws = Redevelopment and reconstruction, considered another source of Seoul housing price increases, are expected to show some vitality. Both Lee and Yoon plan to secure natural supply through deregulation.

Lee said he would lower the weight of the ‘structural safety’ item in safety diagnosis evaluations. He specifically pledged to raise apartment floor area ratios up to 500%. He also proposed introducing a rapid consultation system for redevelopment and reconstruction to speed up maintenance projects and establishing a new 4th residential zone where floor area ratios can be raised up to 500%.

Lee also proposed a ‘Special Remodeling Act’ to secure more housing units through remodeling in complexes where reconstruction is difficult. He pledged to expand ‘vertical extension,’ which was difficult to get building permits due to safety reasons, and open the way for ‘unit division remodeling,’ which divides one large apartment into multiple units.

Yoon also pledged to raise floor area ratios in urban areas up to 500%. Additionally, he promised to exempt ‘detailed safety inspections’ for apartments over 30 years old. If these apartments are exempted from detailed safety inspections, the speed of reconstruction projects currently on hold is expected to accelerate sharply.

The market’s reaction to the controversial ‘Lease 3 Laws’ (Jeonse and monthly rent reporting system, rent ceiling system, and contract renewal request right) has been interpreted differently. Both Lee and Yoon acknowledge problems, but Lee views the current side effects as temporary and supports maintaining the status quo, while Yoon advocates revision. Contrary to the government’s original intention, Yoon argues, "Tenants can immediately benefit from rent renewal, but after two years, they have to bear the sharply increased rent prices."