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Economy

Moon's bid to tame Seoul property prices backfires

Approval dives on boiling anger over officials' home ownership double standards

Homeowners and buyers in Seoul are angry at South Korean President Moon Jae-in's attempts to fix the city's housing crisis.   © AFP/Jiji

SEOUL -- South Korean President Moon Jae-in's chief of staff Noh Young-min came under attack this month for having two houses after having asked staff at the presidential Blue House to sell down if they owned multiple homes.

A chastened Noh sold a residence in his former constituency in Cheongju, North Chungcheong Province, earlier this month, and then put his apartment in the glitzy Gangnam district of Seoul up for sale.

"I failed to meet people's standards by being seen as trying to keep an apartment in Seoul," Noh wrote on Facebook last week. "I am sorry."

In a country where housing has become a hot political and economic issue, Noh's case triggered anger among both homebuyers and homeowners.

Purchasers complained of tighter mortgage rules announced last month that prevent them from borrowing more than 40% of a Seoul property's price. The maximum loan-to-value ratio falls to 20% for homes valued at 900 million won ($750,000) or more.

Homeowners, especially those with multiple properties, are under pressure from heavy taxes. The government plans to impose a property tax of up to 6% on multiple homeowners, as well as making them pay 70% in tax on profits from properties sold within one year of purchase. These changes will be reflected in a bill to revise the tax law that will be submitted to the National Assembly later this month.

Moon was riding high in opinion polls earlier this year after winning plaudits for the government's effective response to the coronavirus, which drew praise for the country overseas. But the new housing policy has contributed to a slide in his approval rating in Gallup Korea polls to 46% last week from 71% in May. One quarter of respondents who disapproved of the president said housing was their top reason.

In South Korea, property accounted for 76% of an average household's estimated total assets at 463 million won in 2019, according to Bank of Korea data.

The rise in Seoul property prices in recent years has resulted from demand outstripping supply. Former Seoul Mayor Park Won-soon, who died in an apparent suicide earlier this month, had been reluctant to loosen restrictions on building in a 150 square-kilometer green belt surrounding the capital that accounts for one quarter of the city's total area.

But Moon said last week that he will listen to members of opposition parties urging the building of more homes in Seoul. The finance ministry also said it is considering raising the floor-area ratio, a building's gross floor area to the size of land, in five suburban districts in Gyeonggi Province and Incheon, both near Seoul, to allow the building of more apartments.

However, not many people want to live in suburban areas because of long commutes and inconvenient transportation. The country's trains and long-haul buses connecting Seoul and residential areas in Incheon and Gyeonggi Province are usually packed at rush hour. GTX, a high-speed train to link Seoul with suburban areas, is under construction, but completion is years away.

Nowhere have property prices risen as much as in Gangnam, the affluent Seoul district immortalized in singer Psy's 2012 smash video hit "Gangnam Style."

Living in the area is a dream for many ordinary Koreans, but few can afford to buy a home there. The median apartment price in the district reached 1.6 billion won in June, 91.6% more than the median price across the capital, according to Korea Appraisal Board data.

People are thus upset at double standards shown by high-ranking government officials, which have been brewing for years. Jang Ha-sung, a former senior secretary to Moon who now serves as ambassador to China, said a few years ago that not everyone needs to live in Gangnam -- a place where he had long resided. Many of the Blue House's senior staff have multiple homes, with Gangnam a popular spot.

Opposition parties use this fact to attack the president and the ruling Democratic Party.

People's Party leader Ahn Cheol-soo criticized Moon's housing policy, demanding that he fire Land Minister Kim Hyun-mee for failing to tame prices despite having enacted 21 new regulations in the two years since her inauguration. "If a batter gets no hits in 21 at-bats, it makes sense to use a pinch hitter," Ahn said.

Kim Jong-in, leader of the United Future Party and an economist, said that taxation is not enough to tame rising housing prices. "If we could solve real estate problems with taxes, then real estate prices might have stabilized already," Kim said in a forum with a senior journalist last week.

Experts also say that the government should focus on addressing the underlying causes rather than applying temporary measures.

"Without fundamental solutions -- supply-demand dynamics and other alternative investment options in this large liquidity environment -- it would be difficult to correct the housing market," said Marie Kim, an economist at Citibank Korea. "Heavy regulations were effective, but only temporarily."

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