According to National Tax Service (NTS) figures 59 percent of apartment sales in Seoul's Gangnam neighborhood were purchases of additional apartments by people who already own two or more homes. It was a sample survey of only nine apartment complexes, but it is enough to show you how serious the speculative real estate investment there is. It was assumed that much of the reason for the high cost of housing in Gangnam was because of speculative investment, but the results of the study are still shocking. It is now clear why apartment costs have been skyrocketing while lease deposits (jeonsegeum) have been stable – because so many apartment purchases are for the purpose of speculation, and not by people who actually intend to live in them.
There has long been debate over the direction of housing policy, over whether the matter should be entrusted to market principles or not. That debate has been one of the factors why authorities have backtracked on measures meant to deter speculative investment. There was confusion as to whether the reason for the rapidly rising prices are because of insufficient supply as far as genuine demand was concerned or whether because it has been because of the speculation. The NTS study provides an answer. The "market-first" believers who have argued that anything meant to deter demand is "anti-market," no matter whether the problem is speculation or not, might think differently. But it would be futile to repeat the mantras about market principles now that that there is confirmation of the fact the market is unnaturally distorted because of hoarding.
It appears that now policy will need to have clearer direction. Speculative investment must be controlled by making it cost someone a lot to engage in excessive home ownership, and the focus should go a step further and make multiple home owners put their surplus homes on the market. The priority there will be making property taxes more effective, particular the "comprehensive real estate tax," which was relaxed considerably. The National Assembly must stop refusing to do what it had pledged to. We hope the conservative media and scholars who have gone on ideological offensives with accusations that attempts to do something about the problem is an "attack on the Gangnam rich" show restraint.
Means of using capital from finance institutions to fund speculative investment fund must be blocked. The Financial Supervisory Commission just improved regulations on loans for areas cited as speculative investment zones, but it should not stop at that; it should consider whether there needs to be improvement in the financial process to make those regulations more effective. Meanwhile there needs to be a steady supply of quality housing. Supplying housing will hardly be effective if action is not taken against excessive ownership, because it would be like supplying basis for speculative investment until the bubble pops. Controls on speculative investment and increased supply must be done together. The debate about which of the two is the right approach will only add to the confusion.
The Hankyoreh, 2 July 2005.
[Translations by Seoul Selection (PMS)]
[Editorial] Investment in Gangnam Apts What THAT Serious! |
