The linchpin of both the education and health care reforms lies in President Moon’s firm belief in leveling out the playing field in the crucially unbalanced socioeconomical arena in Korea. As the last in the triumvirate of reforms since the president’s inauguration, housing reforms followed the same principle; on three separate dates, President Moon carved out significant housing reforms that hoped to stabilize the fluctuating market and crack down on the abuse of real estate as a means for speculation.
Based on a report titled “Selective and Customized Solutions for Stability of the Housing Market” published by the Ministry of Land, Infrastructure and Transport (MOLIT) on June 19, thanks to the rising economy, political security, and low-interest trend of the market, housing demand increased with consumers looking towards real estate speculation. Before 2015, the percentage of multi-house owners was 7.5%, but by 2017 it had doubled to 14%. Such investments were concentrated in populated areas, namely Seoul, Busan, Sejong, and the Gangwon province in anticipation of the 2018 Pyeongchang Winter Olympics. Since the “16.11.3 Housing Reform”, regions have been classified into three groups in order of increased market activity: restricted, speculated, and highly-speculated. Despite previous restrictions on each type, the paper forecast increased polarization of highly-speculated zones, such as Gangnam and Sejong, which are infamous for their high-return trades.
The same report planted the seeds of the reforms that worked to counteract the imbalance. The key points of the first reform were: 1) additional designation of restricted regions, 2) strengthened regulation of such regions, and 3) establishment of the market order against illegal acts. MOLIT added three more areas (one from Gwangmyeong, two from Busan) to the restricted list, totaling 40. Additionally, the Loan-to-Value (LTV) and Debt-to-Income (DTI) ratio in such areas both dropped by 10% to 60% and 50% respectively. The government also tightened its grip on reconstructed units — apartments undergoing renovation, thus increasing their value — by limiting distribution of reconstructed houses to only one per apartment member, unlike three previously.
Carrying the momentum forward, on August 2, President Moon announced the “8.2 Housing Reform” as the meat of his reforms; it marked “speculated” areas and fortified the intensity of the restrictions. The summer proposal attacked short- term speculations while protecting the government’s target consumers, namely “end users” who enter the market for residence, not investment opportunities. First, the entirety of Seoul was identified as “speculated” and 11 areas became “highly-speculated”. The reform then lowered the LTV and DTI ratio to 40% for such districts. It also blocked the reign of monopolies by the owners’ unions for reconstructed units, extending to even studio apartments. Finally, Moon increased transfer income taxes, which are put on the profit earned through real estate sale, by first, narrowing exemption conditions, and second, setting the tax ratio at 50% for any “restricted” and above regions. The “end users” were spared from the sudden changes through residency exemptions, by which those who have resided in their houses for more than two years pay far less tax. Overall, by reducing the amount of gain resulting from excessive trading, the government hoped to rein in over-speculation.
And most recently, on September 5, the administration added its final touches. The Suseong district and Bundang-gu became “speculated” after they saw a 2.10% and 1.41% price increase respectively after the August reform. The government also put 11 zones under the “monitored” status, in case they become “speculated” regions. The second major policy focused on the price regulation of apartments, namely putting a price ceiling on the distributed units if certain conditions are met.
However, the solutions, like the regions they span, can only reach so far. Experts expressed concerns about the “balloon effect” — a case in which, like air in a squeezed balloon, the competitive speculation merely bulges at another point. Novel cities such as the Songdo International Business District saw such “reflection benefits” as investors sought refuge from restrictions. Some also stated that other factors such as the temporary shortage of houses were just as responsible for the skyrocketing housing prices. Other criticisms even addressed the possible isolation of the “end users”, who may refrain from buying in fear of decreasing prices.
Even so, the reforms certainly have shaken the market. The initial hubbub after the June reform did cause a notable decrease in speculation. In Seoul, the apartment price growth rate dropped, becoming 0.7%, 0.5%, and 0.4% for each week after August 2. However, the markets always saw eventual restoration of the speculation rates, raising questions to the policies’ long-term effectiveness.
Since the dawn of his administration, Moon always reflected the sentiment “for the seomins” — a time-honored, yet nebulous word rehashed by every Korean politician that means “ordinary people”. Despite the usual, banal use of the word, Moon has promised and is carrying out numerous egalitarian policies that aim to iron out the inequalities in sectors such as education, health care, and housing. For the next few years, we must closely observe whether the seeds will be knocked out by the wind or take root in the Korean soil.