On the 16th, Yoon Administration Reveals Plan to Supply 2.5 Million Houses... How Much Will Regulations Be Eased?

Real Estate Ministers' Meeting Rescheduled from the 9th to the 16th

Level of Regulatory Relaxation on Rebuilding Excess Profit Recovery System and Safety Inspections

[Asia Economy Reporter Kim Min-young] As the new government's first housing supply plan is set to be announced next week, attention is focused on the level of easing regulations on reconstruction, supply locations, and methods. In particular, there is keen interest in the extent to which regulations related to the Reconstruction Excess Profit Recovery System (재초환, Jaechohwan) and reconstruction safety inspections, which have slowed down reconstruction projects, will be relaxed. There are also observations that it may be difficult to swiftly implement the supply plan due to domestic and international economic conditions such as inflation-driven price increases, a real estate market downturn, and interest rate hikes.

According to the government on the 14th, the government will hold a Real Estate Ministers' Meeting on the 16th to announce the new government's housing supply plan. The government had originally planned to announce the supply plan on the 9th but postponed the announcement to respond to heavy rain in the metropolitan area and other regions.

The core content is to newly supply more than 2.5 million housing units, mainly in the metropolitan area. To facilitate smooth supply, it is known that the plan will include easing regulations on reconstruction safety inspections, relaxing the Jaechohwan system, raising floor area ratio limits, and introducing an integrated review system. However, considering side effects such as market stimulation caused by comprehensive deregulation, the government is expected to moderate the pace of regulatory easing.

Attention is also focused on the potential impact on the market once the large-scale supply plan is announced. According to the Korea Real Estate Board, as of the 8th, apartment prices in Seoul fell by 0.08% compared to the previous week, widening the decline from last week's -0.07%. This was the largest drop in 3 years and 4 months since April 1, 2019 (-0.08%). This is the result of a combination of base interest rate hikes, concerns about economic recession, and a slowdown in real estate transactions. Some market observers predict that the government's plan, which includes deregulation related to redevelopment projects, could temporarily invigorate the transaction market.

However, there are many challenges to be resolved before the supply plan can be realized. Compared to the presidential election period, new variables such as rising prices and a real estate market downturn have emerged, and in the case of Jaechohwan, which requires legal amendments, the consent of the Democratic Party of Korea is essential.

Some speculate that the effect of the Yoon administration's first housing supply policy may not be significant due to the aftermath of interest rate hikes and rising raw material costs. The ratio of apartment construction starts to permits in the first half of the year (65.4%) has fallen to the lowest level in 12 years. This means that although permits have been obtained, actual groundbreaking work is being delayed, indicating that construction companies responsible for delivering the 2.5 million housing units are hesitant to start construction.