[Editorial] Land Compensation and the Real Estate Market

People will soon be receiving compensation money for land and structures in the area of South Chungnam province where the national government's administrative city is going to be constructed. The first round of payments will amount to W3.4 trillion. The government says that even if you include land that has not been assessed yet total compensation will not exceed the initial goal of W4.6 trillion, but that is still a massive amount. That much money suddenly in circulation could be a problem, because it is enough to make the real estate market restless again.

Compared to compensation paid in the course of constructing the "new town" of Pan'gyo, Gyeonggi province, less money is going to absentee landowners, money that would more likely be used in speculative real estate investment, and this time around local conditions and the real estate market itself are different. The government has also added an element of safety in deciding to pay absentee landowners in bonds in cases where they are set to receive more than W30 million. Still, the potential effects of the money will still be significant. For one thing, it will be W2.5 trillion more than compensation funds for Pan'gyo. The area of South Chungnam where the new city is going to be built has already seen land prices rise considerably, making it unsuitable for reinvestment, and most of the rest of the Chungcheong region, including Daejeon, Cheongju, Cheonan, and Asan are zoned so that land transactions require permits, and that makes it hard to conduct speculative real estate deals. However, spare wads of cash always find something to invest in. Just like the Pan'gyo compensation funds made apartment prices in Bundang and Gangnam go up, this time as well, compensation could lead to an unexpected speculative investment frenzy.

The government needs to stay on top of the situation and make sure that compensation funds are not being used in speculation, and that there is not a repeat of the same kind of side effects that were seen after payments for Pan'gyo. If the market gets restless again it could lead to glitches in the construction of the "innovation cities" that are being planned. It is important that the government responds when problems occur, but the solution is making it hard to expect profits from real estate speculation. That, in turn, is another reason why it is unfortunate the National Assembly is not passing follow-up legislation to the August 31 Real Estate Measures.

The Hankyoreh, 20 December 2005.

[Translations by Seoul Selection]