[Expert Analysis] Flood of Real Estate Policies Ahead of General Election: "Driving Investment Demand" VS "No Effect"

Regulation Easing on Reconstruction, Military Protection Zones, and Official Property Prices Continues
"Reducing Housing Ownership Burden Increases Purchases... Synergy Expected if Interest Rates Fall"
Some Say "Insufficient for Market Reversal"
"Low Likelihood of Market Movement Even with Supply and Tax Changes"

As the government moves to ease regulations ahead of this year's general elections, including exemptions from reconstruction safety inspections, lifting military protection zones, and abolishing plans to adjust official property prices, experts are divided on the market's direction. While some predict that investment demand may soon arise, leading to a stimulus effect, others analyze that it will be difficult for rebound sentiment to appear amid a frozen external financial environment. Some also suggest that easing regulations related to multi-homeowners could be the key to a market rebound.

Minister of Land, Infrastructure and Transport Park Sang-woo is announcing the major policy plans related to the transportation sector reported at the "Public Livelihood Discussion with the People" held on the 25th at the Government Seoul Office in Jongno-gu, Seoul. Photo by Jo Yong-jun jun21@

Actual Transaction Prices Stirring Due to Government Stimulus Measures

Professor Lee Chang-moo of Hanyang University's Department of Urban Engineering explained that the government's continuous economic stimulus measures this year could influence the market amid uncertain and wavering conditions, saying, "As seen in the recent rise in the actual transaction price index, the market is responding immediately." According to the Korea Real Estate Board, Seoul apartment actual transaction price index rose by 0.45% in January, marking an upward turn after four months since September last year (0.94%).

Professor Lee also evaluated that "the abolition of the official price adjustment plan can serve to release the overly suppressed investment appetite so far," adding, "By reducing the burden of housing ownership, it will act as a factor inducing additional ownership."

Professor Changmoo Lee, Department of Urban Engineering, Hanyang University, and Jiyoung Yang, Director of Jiyoung Yang R&C Research Institute

On the 19th, the government officially announced the abolition of the ‘Official Price Adjustment Plan,’ which aimed to raise real estate official prices to 90% of market prices by 2035. With the plan abolished, property holding taxes such as property tax and comprehensive real estate tax, which are based on official prices, will decrease.

On the 26th of last month, a plan was also announced to lift military facility protection zones covering a total of 339㎢ (103 million pyeong, 117 times the area of Yeouido). This includes the three Gangnam districts of Seoul (Gangnam, Seocho, Songpa, 46㎢) and parts of Seongnam City (71㎢), where large-scale residential and commercial complex supply will become possible. Military facility protection zones are designated to protect military facilities and facilitate military operations, restricting the construction and height of buildings within them. In the same month, a deregulation measure was introduced to lift greenbelt restrictions in non-capital areas covering an area 837 times that of Yeouido.

In January, measures were introduced to relax the criteria for old houses eligible for redevelopment and other maintenance projects from two-thirds to 60%, and to expand the application areas of the Special Act on Old Planned Cities from about 50 to 108 locations. Areas under the Special Act can receive exemptions or relaxations in safety inspection standards and benefits such as increased floor area ratio. Proposals to expand the metropolitan express transit system (GTX) nationwide and plans to underground highways and railroads were also presented.

Yang Ji-young, head of Yang Ji-young R&C Research Institute, evaluated, "While these policies are unlikely to change the market landscape significantly, they can instill expectations in the market and produce some positive effects in certain areas," adding, "If combined with future interest rate cuts, they could create synergy."

"Market Sentiment Reversal Is Difficult"

There are also opinions that these measures are insufficient to lift market sentiment. Kim Kyu-jung, real estate specialist at Korea Investment & Securities, assessed, "With high interest rates and continued tightening of loan regulations, and events like project financing (PF) restructuring scheduled for the second half of this year, it will be difficult for housing transaction volumes and prices to revive through policies such as supply expansion or tax burden relief." Kim added, "Since urban redevelopment or new town reconstruction projects have not yet fully progressed, we need to observe their effects," but also noted, "It is difficult to have high expectations from a policy perspective."

Gyujeong Kim, Real Estate Specialist at Korea Investment & Securities, Sumin Yoon, Real Estate Specialist at NH Nonghyup Bank, Sangwoo Lee, CEO of Invade Investment Advisory

Yoon Soo-min, real estate specialist at NH Nonghyup Bank, said, "The current real estate market slump is due to demand-side factors such as interest rates and loan regulations, so no matter how much supply or tax aspects are adjusted, the market is unlikely to move in the short term," adding, "Since the market is naturally adjusting, caution is needed when introducing measures to artificially stimulate demand."

There is also a forecast that easing regulations on multi-homeowners is necessary for effectiveness. Lee Sang-woo, CEO of Invade Investment Advisory, diagnosed, "Stimulating investment demand, that is, easing regulations on multi-homeowners, is essential, but transactions are not occurring because issues like the comprehensive real estate tax have not been resolved." He further predicted, "As preference for a ‘smart single home’ increases and the concentration in Seoul’s Gangnam intensifies, polarization will worsen, and the unsold housing problem is unlikely to be resolved."