President Lee Jae-myung's comments on real estate during a press conference marking his first anniversary in office have drawn significant attention from the market.
President Lee stated, "I believe we have effectively managed the upward pressure on housing prices. Seoul has always been a place where real estate policies receive criticism, but I think the positive impacts have outweighed the negative ones." He also addressed the rental crisis, suggesting that the increase in jeonse loans has contributed to rising property prices, indicating a critical stance on these loans. Regarding taxation, he noted, "Our country's property tax is low. We will not only address the market through taxes but will also announce a comprehensive approach that includes taxation, finance, and supply, likely in July."
In summary, the current administration asserts it has performed well thus far and intends to maintain its existing regulatory policies. Contrary to market expectations that the real estate policy might soften following local election results, it appears the government is keeping financial regulations in place while also considering tightening tax measures and continuing supply policies.
However, how the market perceives these actions remains a separate issue. While the government claims to have suppressed the pressure on housing prices, the prevailing sentiment in the market tells a different story. Since President Lee took office, apartment prices in Seoul have consistently risen, with record-high transactions occurring in key areas. This upward trend has spread beyond Gangnam to regions like Mapo, Seongdong, Dongjak, and Gwangjin, often referred to as the semi-Gangnam area and the Han River belt.
In the year following President Lee's inauguration, the cumulative increase in Seoul apartment prices reached 14.73%. This is higher than the increases seen during the Roh Moo-hyun administration at 11.68% and the Moon Jae-in administration at 9.41%. Although interest rates remain relatively high, concerns about a shortage of new housing and instability in the rental market raise worries for the remaining four years of his term.
Real estate was also a key factor in the recent Seoul mayoral election. Analysts suggest that voter sentiment shifted around the Han River belt due to concerns over tax burdens and asset values. Additionally, instability in the rental market has exacerbated housing insecurity for younger generations, becoming a significant political issue.
Labeling the severe rental crisis, characterized by skyrocketing jeonse prices and a shortage of rental listings, as a normalization process, while simultaneously proposing stricter regulations on jeonse loans, undermines the goal of ensuring housing stability for ordinary citizens. It appears the focus has shifted to merely controlling prices in Gangnam.
The debate over taxation mirrors this sentiment. While the president mentioned that property tax levels in South Korea are low, the evaluation can vary depending on the criteria used. Although international comparisons may show a lower proportion of property taxes, homeowners in key areas of Seoul often feel a significant burden from comprehensive real estate taxes and property taxes.
In fact, the total proportion of real estate taxes, combining transaction taxes and property taxes, stands at 2.67%, placing South Korea third after the United Kingdom at 3.43% and Canada at 3.02%. This figure is higher than those in the United States and Japan and more than double the OECD average of 1.27%.
Statistics can easily lead to generalization errors if one only considers favorable data. It seems unlikely that residents in the metropolitan area would agree with the assertion that the government has effectively managed housing price increases and that the rental crisis is in a normalization phase.
Rather than ensuring housing stability for ordinary citizens, it appears the government is engaged in a battle to prevent funds from the stock market from flowing into real estate, aiming to redirect real estate funds to bolster the stock market. Supply does not materialize instantly, and lending has already been tightened significantly.
Ultimately, the market is keenly watching what measures the government will actually implement. Currently discussed policy tools include strengthening the comprehensive real estate tax, reducing long-term holding tax exemptions for non-resident homeowners, and imposing additional lending restrictions. However, financial regulations are already at a considerable level, and the increased capital gains tax for multiple homeowners has been reinstated. Additionally, expanding supply is unlikely to yield immediate results, leading to assessments that policy options may be more limited than anticipated.
The rising prices in Gangnam may not directly lead to a decline in public sentiment or support for the government. However, as rental and jeonse listings dwindle and prices rise, the real issues will emerge when the fire is in one’s own backyard.
Renters without homes still express a need for jeonse loans, while the government views these loans as a source of market distortion. Bridging this gap will likely become the most critical challenge for future real estate policies.
Ultimately, what the market is curious about is not just how much the government can control housing prices, but whose interests the policies serve. If the government's notion of market stability diverges from the public's perception of housing stability, debates surrounding real estate policies will likely continue. The question remains: for whom is the government ringing the bell?
* This article has been translated by AI.
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