South Koreans struggle to climb the real estate ladder as prices explode

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

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

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

Just five years ago, Lee would have found her quest much easier.

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

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

Like many potential homebuyers, Lee is now considering migrating northwest to neighboring Gyeonggi province, where prices are lower than Seoul.

Under outgoing left-wing President Moon Jae-in, South Korea has experienced an extraordinary rise in real estate prices.

Yoon Seok-yeol, his conservative successor who took office on May 10, has pledged to tackle the problem by cutting taxes and relaxing regulations governing the construction of new homes.

The average sales price of a home in the greater Seoul area skyrocketed 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.

According to KB Kookmin Bank, the average cost of an apartment in Seoul, the most desirable type of real estate in South Korea, rose from 607 million won ($488,000) to 1.2 billion won ($944,000) over the same period. data.

Moon, a former human rights lawyer who campaigned to close the gap between rich and poor, made stabilizing house prices a major agenda of his government and implemented more than 20 related measures, including raising taxes and limiting mortgage loans. .

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

“We will not lose the war on housing speculation.”

However, many economists say Moon’s policies have actually made the situation worse.

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

In a 2020 survey by the Korean Economic Association, more than 70 percent of economists who responded said the government’s policies aimed at taming speculation rather than increasing housing supply exacerbated the situation.

“Designating certain areas as ‘speculation-ridden areas’ and introducing a transaction licensing system was a signal to people that prices will rise,” Kim Jun-seong, a professor at Kyung Hee University in Seoul, said in a statement. a response to the survey.

“This was not something that the government, which has more information than individual market participants, should be doing, and I think it has influenced the rise in house prices a lot.”

But while the red-hot market has left many young starters behind, it has also created 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 move in together four years ago.

“’Why on earth are you planning to buy a house in times like these? Can’t you see the prices are so high?’ they always said,” Mo said to Al Jazeera, remembering how his friends reacted back then.

“Many of my friends are left-wing, and they were more or less confident that the Moon administration would cut housing prices.”

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

Despite being aimed at lowering prices, some of the government’s mortgage policy is being blamed for making it difficult for potential buyers who might otherwise be able to afford a home.

Moon’s government 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 percent to 40 percent for properties valued up to 900 million won, with the ratio was further reduced to 20 percent for amounts above the 900 million won threshold.

For potential buyers like Lee, the rules have made getting a loan a struggle.

“Our combined income isn’t that small, but somehow it becomes a barrier to getting a loan from the bank,” Lee said.

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

INTERACTIVE - SOUTH KOREA'S GENERATIONAL HOME OWNERSHIP GAP

In a country where real estate accounts for more than 60 percent of household wealth, rising unaffordability has led to a gaping generational gap in home ownership and wealth.

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

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

“But things are starting to falter for those born after 1981. When it comes to those born in the late 80s, housing mobility just collapses.”

This gap helps explain why Generation Z and millennial South Koreans are so hostile to the older generation, Cho said.

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

However, experts say it could take some time for Yoon’s housing promises to be fully realized, with some experts warning that market deregulation could further boost prices.

“While market expectations for deregulation are high, the new government is likely to push through deregulation gradually,” Ha Seo-jin, senior researcher at the Hana Institute of Finance think tank, told Al Jazeera.

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

“When I heard that they will relax loan regulations, I am excited,” Lee said. “But I am also afraid that prices will also go up. It’s complicated, but I think I’ll at least worry less if I go to the bank for a loan.”

Mo, on the other hand, believes that the government can do little about the market.

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

“Every government has done that. Ultimately, it’s about how people adapt to new governance and policies.”



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