Korea to control housing supply in Seoul

Deputy Prime Minister and Finance Minister Hyun Oh-seok said Wednesday that the government will aim to speed up the recovery of the housing market as a means to improve the overall economy.

In a meeting with economic-related ministers, Hyun said that it will control the supply side of the housing market especially in the Seoul metropolitan areas, in addition to tax cuts, to spur demand and thus transactions.

However, it will continue to moderately provide public housing for the low- and mid-income groups to ease the pressure of rising costs of jeonse, a deposit receivable after the end of a leasing contract.

Korea’s housing market, especially in the Seoul metropolitan areas, has been sluggish since 2009, hitting bottom last year due to a lack of demand, the Finance Ministry noted.

However, still-high housing prices mostly led apartment seekers to pay jeonse rather than buy homes, leading to skyrocketing jeonse prices.

The Finance Ministry said stagnant transactions, declining apartment values and rising jeonse prices could adversely dampen the overall economy in the medium to long term.

Market analysts say a slowdown in the housing market could make it harder for borrowers to pay down their mortgages amid already high household debt that must be deleveraged to sustain the economy.

High debt would lead to lower consumption as families would focus on paying back their debt with their incomes more than spending for goods, which could lead to shorter tax revenue for the government, they noted.

Hyun urged related ministers to speed up the government’s property stimulus that was unveiled in April and included lowering the capital gains tax and other deregulations.

The Ministry of Land, Infrastructure and Transport is moving to reduce about 180,000 apartments in the metropolitan areas by controlling the supply of both public and private residential housing over the next two years.

In a report to the deputy prime minister, the Land Ministry would carry out measures that include delaying or reducing housing construction projects as part of efforts to revitalize the market.

The central government had announced that it would indefinitely lower property purchase tax rates accordingly to apartment prices in the face of growing opposition from regional offices and administrations.

The central government seeks to draw a consensus on the matter to submit a revised bill for a National Assembly approval by August for rapid housing market revitalization in the latter half of this year.

Lower property acquisition taxes could further hurt revenues of local governments as they face growing costs of public welfare and mounting debt.

By Park Hyong-ki (hkp@heraldcorp.com)