Seoul apartment prices, which had appeared to be cooling, are stirring again amid a record-breaking jeonse (a Korean lease system requiring a large lump-sum deposit instead of monthly rent) shortage. According to the Korea Real Estate Board on the 7th, Seoul apartment sale prices in the first week of May rose 0.15 percent from the previous week, widening the pace of gains. All districts except Gangnam-gu posted increases, and Yongsan-gu, which had been declining, turned upward for the first time in four weeks. Seoul apartment jeonse prices climbed 0.23 percent week-on-week, the steepest rise since the 0.26 percent recorded in the third week of November 2015. There are concerns about a vicious cycle in which the jeonse shortage, driven by a drought of listings, pushes sale prices higher.
Despite warning signs flashing in the property market, the government is going out of its way to look the other way. At a meeting of the emergency economic headquarters and a joint economic and real estate ministerial meeting on the 8th, Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol said, "We are blocking speculative buying at its source through lending curbs and the land transaction permit system," adding that "expectations for further home price increases are also weakening." The remarks appear intended to stress that the government's measures are working, a day before the expiration of the moratorium on heavier capital gains taxes for multi-home owners.
In the market, however, the prevailing view is that implementing heavier capital gains taxes on multi-home owners will only deepen the freeze on listings and worsen the jeonse crunch. Multi-home owners who felt the tax burden have already disposed of their properties, and those who have held on until now are more likely to opt for gifting or long-term holding. Listings locked up in the market can also be passed on through higher jeonse and monthly rents, compounding housing insecurity for ordinary households. A policy meant to stabilize housing by drawing multi-home owners' listings into the market is instead producing the opposite effect.
The mistakes of the Moon Jae-in administration, whose regulation-heavy approach did nothing but drive home prices sharply higher, must not be repeated. It has been amply demonstrated that punitive taxation and artificial demand suppression cannot contain housing prices. The fundamental solution to stabilizing home prices lies in sending a clear signal that quality housing will be supplied in sufficient quantity at the locations the market wants. The government's pledge in the January 29 measures to supply 60,000 units in the greater Seoul area by 2030 has limits in calming immediate market jitters, since actual move-ins take time. Even at this late stage, the government must swiftly implement effective measures to maximize private-sector supply, including easing reconstruction and redevelopment regulations and streamlining maintenance plan procedures.
