The government has vowed an indefinite crackdown on speculators in apartments in Seoul’s affluent Gangnam region.
Though a strong clampdown targeting houses in a specific area is an unusual move, it is understandable considering the latest surge in apartment prices there.
But whether the measure can cool the overheating apartment market in the region is questionable.
There are many factors behind high demand for apartments in the region. The government must take them into sufficient consideration and work out fundamental solutions, rather than sticking to demand control.
Under the crackdown measure unveiled Thursday, a joint team of central and provincial government officials will review suspicious apartment sales and apartment reconstruction projects in the region. They will investigate whether residents or brokers colluded to raise asking prices of their apartments, for example. The National Tax Service will probe real estate transactions, including parents giving apartments to children, and examine the sources of funds if tax evasion is suspected.
This measure is based on a perception that the real estate market in the region has been overheated by speculators.
Considering soaring prices of apartments in the four districts in question -- Gangnam, Seocho, Songpa and Gangdong -- which rose 0.69 percent, much higher than the national average of 0.02 percent, in the first week of this year, the crackdown decision is understandable, but whether it is hitting its target is questionable.
No doubt, illegal cases or irregularities should be tracked down and punished, but the government’s attribution of the problem to speculators living in the districts is contestable.
Of course, some of the demand for Gangnam apartments may be speculative, but the reasons for such speculative demand needs to be considered. There are a number of wide-ranging and underlying factors at work in the overheating market.
Experts cite a changed psychology of owners of multiple houses. Measures targeting them, such as heavier capital gains taxes set to take effect from April, this year, have prompted them to hold or try to buy homes in the Gangnam region while disposing of their houses in other areas. As a consequence, demand for Gangnam apartments has surged, while prices of provincial apartments have stagnated or fallen.
An Education Ministry decision to put unsuccessful applicants for elite high schools at a disadvantage when they are allocated to school districts is mentioned as a factor to be reckoned with which boosted the popularity of the Gangnam region, whose educational environments are preferred by students and parents.
One of the underlying causes for the housing market moving in the opposite direction to where the government wants it to go is a mismatch between supply and demand.
Demand far exceeds supply in the Gangnam area, while supply is excessive in other parts of the country.
The government should pay attention to why people want to move to the region. It has much better living and educational infrastructure than other regions. Large businesses are headquartered there.
In Seoul and in the Gangnam area in particular, vacant lots for new apartments are scarce, except for the sites of old apartments, which need to be reconstructed. There is no question that prices of old apartments are expected to rise.
Obviously, a crackdown is not a proper solution to induce organic changes in the market. Accusing owners of multiple homes of being speculators and scaring them with stiffer taxes does little to solve the problem. The government has tightened housing loans and is considering raising taxes for the ownership itself of expensive homes as a last resort to tamp down housing prices. Something must be done to cool the overheating market, but attempts to restrain mounting demand forcibly will have limited or adverse effects as long as the supply side is not addressed simultaneously.
If the government wants to pull down Gangnam apartment prices, it must deal with the problem of scarce supply in the region by increasing housing supply and improving infrastructure in other areas.
