South Koreans struggle to climb real estate ladder as prices soar | Business and economy

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Incheon, South Korea – Until recently, Lee Ju-hyeon didn’t take the idea of ​​buying a house seriously.

But when Lee, 33, started looking for a place to live with her soon-to-be husband, she was shocked to see how prices had skyrocketed.

“We are looking for a house of about 66 square meters in the price range of 400 million won ($316,000),” Lee, who works as a journalist, told Al Jazeera. “But now the prices are unrealistic.”

Only five years ago, Lee would have found his search much easier.

The average apartment in Lee Ward in Eunpyeong, northwest Seoul, cost 470 million won ($370,000) in 2017, according to KB Kookmin Bank’s house price tracker. .

It now exceeds 900 million won ($709,000).

Like many other potential buyers, Lee is now considering migrating northwest to neighboring Gyeonggi Province, where prices are lower than in Seoul.

Under left-leaning incumbent Moon Jae-in, South Korea has seen an extraordinary spike in property prices.

Yoon Seok-yeol, his conservative successor who takes office on May 10, has pledged to tackle the problem by cutting taxes and easing regulations on building new homes.

The average sale price of a house in the greater Seoul area has risen from 341 million won ($274,000) in May 2017, when Moon was inaugurated, to 626 million won ($503,000) in March 2022. , according to the Korea Real Estate Board.

The average cost of an apartment in Seoul, the most sought-after property type in South Korea, soared again from 607 million won ($488,000) to 1.2 billion won ($944,000). ) over the same period, according to KB Kookmin Bank Data.

Moon, a former human rights lawyer who campaigned to narrow the gap between rich and poor, has made stabilizing housing prices a key program of his administration, implementing more than 20 measures related issues, including raising taxes and limiting mortgage lending.

“Our government’s determination to stabilize the housing market, protect real demand and control speculation is firm,” Moon said in his 2020 New Year’s address.

“We will not lose the war against real estate speculation.”

Many economists, however, say Moon’s policies actually made the situation worse.

Moon Jae-in
South Korean President Moon Jae-in has pledged to stabilize property prices [File: Yonhap via Reuters]

In a 2020 survey by the Korea Economic Association, more than 70% of responding economists said the administration’s policies, which aimed to rein in speculation rather than increase housing supply, had worsened the situation.

“The designation of certain areas as ‘speculation zones’ and the introduction of a permit system for transactions have sent a signal to people that prices will rise,” said Kim Jun-seong, a professor at the University. Kyung Hee from Seoul, in a response to the poll.

“It was not something that the government, which has more information than individual market players, should do, and I think it affected the spike in house prices a lot.”

But while the hot market has left many young first-time buyers behind, it has also created some big winners.

Mo Ji-woong, a 37-year-old photographer, bought a house in Gimpo, 20 km west of Seoul, when he and his girlfriend decided to live together four years ago.

“’Why the hell are you considering buying a house at times like this? Can’t you see the prices are so high? they used to say,” Mo told Al Jazeera, recalling his friends’ reaction at the time.

“A lot of my friends are on the left, and they more or less believed that the Moon administration would lower real estate prices.”

Mo said his apartment in Gimpo was now worth double what he paid for.

Although aimed at cooling prices, some of the government’s mortgage policies have been accused of making it difficult for potential buyers who might otherwise be able to afford a home.

Moon’s administration cut the loan-to-value ratio – the amount a buyer is allowed to borrow relative to the price of a property – in Seoul from 70% to 40% for properties valued up to 900 million won, with the ratio further reduced to 20% for amounts above the 900 million won threshold.

For potential buyers like Lee, the rules have made it difficult to get a loan.

“Our combined income is not that low, but somehow it becomes a barrier to getting a loan from the bank,” Lee said.

“I even looked for government subsidized loans, but they are only available to low-income people,” she added. “All this does not correspond to reality.”

INTERACTIVE - THE GENERATIONAL OWNERSHIP GAP IN SOUTH KOREA

In a country where real estate accounts for more than 60% of household assets, growing unaffordability has resulted in a yawning generational gap in ownership and wealth.

An analysis of the 2020 Korea Housing Survey shows that home ownership is falling among people under the age of 40.

“The housing ladder for Korea’s middle class was somewhat stable for people born in the 1970s,” Cho Gwi-dong, an independent economics researcher, told Al Jazeera.

“But that starts to falter for those born after 1981. For those born in the late 80s, housing mobility plummets.”

This gap helps explain why Gen Z and millennial South Koreans are so antagonistic towards the older generation, Cho said.

Moon’s housing policy was widely seen as a key factor in Yoon’s victory over ruling party candidate Lee Jae-myung in March’s presidential election. During his campaign, Yoon promised to cut property and capital gains taxes and boost housing supply by easing regulations.

However, experts say it may take some time for Yoon’s housing policy promises to be fully realized, while some experts warn market deregulation could further boost prices.

“While market expectations for deregulation are high, the new administration is expected to gradually pursue deregulation,” Ha Seo-jin, senior fellow at think tank Hana Institute of Finance, told Al Jazeera.

The most anticipated deregulation affecting construction could come after an easing of financial regulations, Ha added.

“Hearing that they’re going to relax loan regulations makes me excited,” Lee said. “But I’m also worried that prices will go up as well. It’s complicated, but at least I guess I’ll be less worried when I go to the bank for a loan.

Mo, on the other hand, believes that the government cannot do much about the market.

“To me, Yoon’s housing policy sounds like empty words just to appease people,” he said.

“Every administration has done it. Ultimately it’s about how people adjust to a new administration and a new policy.

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