The frozen housing market is showing early signs of thawing following the government’s stimulus package announced a week ago.
According to reports, apartment sale prices in Seoul rose 0.03 percent last week, the first rise in 14 weeks. A price rise was also spotted in cities around Seoul, with the average apartment sale prices in the capital zone inching up 0.01 percent, the first gain since March 2011.
These signs are encouraging. To help the budding recovery take root, it is incumbent upon the government to take follow-up measures. Lawmakers are also urged to pass related reform bills without delay.
The Aug. 28 package is aimed primarily at stabilizing the rental market, as deposits for “jeonse” contracts have been soaring, causing great pain to ordinary families.
Jeonse is a rental system in which a tenant pays up front a fully refundable lump-sum deposit to the landlord, but does not pay monthly rent.
The surge in the price of jeonse deposits stems from the continued fall in home sale prices. As home prices have kept falling, many people who could afford to buy a home have chosen to rent one in anticipation of a further drop in housing prices, thus driving up rent.
On the supply side, homes for jeonse contracts have been getting more and more difficult to find as homeowners increasingly prefer agreements that bring them monthly rental income.
The latest package seeks to address the mismatch by turning the demand for rental homes into demand for home purchases.
For this, the government plans to introduce long-term, low-cost mortgages. One innovative proposal calls for lending up to 200 million won to first-time buyers at an interest rate of just 1.5 percent, even lower than the rate of inflation.
This proposal elicited keen interest from prospective home buyers, who flooded the Ministry of Land, Infrastructure and Transport with calls.
The ministry needs to flesh out the details of its lending plans early and expand the supply of low-cost mortgages to activate housing transactions, which is the key to boosting the dormant property market.
The package also proposes to lower the home acquisition tax rates, a measure that would reduce the tax income of local governments. The Ministry of Strategy and Finance needs to come up with plans to address this problem.
The government also needs to build more low-cost public rental houses for people who cannot afford to buy a home.
