President Yoon Suk Yeol announced that the government will ease redevelopment and reconstruction regulations on Jan. 10. “We will allow houses that were built more than 30 years ago to begin reconstruction without going through a safety inspection,” he said during a government policy debate held in Goyang, a city northwest of Seoul. He also vowed to “raise the floor area ratio by up to 500 percent, so that redevelopment of new towns can begin within my term.”
These policy changes, which are expected to have a significant impact on the real estate market, were announced abruptly by the President without sufficient prior consultation. President Yoon disclosed plans to scrap the financial investment income tax at the opening ceremony of the 2024 stock market on Jan. 2. While investors welcomed this announcement, it also sparked controversy because the policy deviates from current trends in capital taxation practices.
Relaxing regulations on redevelopment and reconstruction are necessary given that home prices in Korea have skyrocketed after the former Moon Jae-in administration curbed both redevelopment and reconstruction. Redevelopment of neighborhoods with high concentrations of old low-rise dwellings is particularly urgent.
However, demolishing and rebuilding apartments that are only 30 years old is a waste of national resources, especially without safety assessments. It’s a populist move that’s in line with a world that treats apartments less as living spaces and more as a means of speculation to make money.
The Ministry of Land, Infrastructure, and Transport proposed measures to exclude newly built small houses and unsold properties from being counted in the total number of houses when assessing taxes following President Yoon’s announcement.
The government wants to prevent the property market from a potential hard landing triggered by real estate project financing insolvency and a slowdown in property sales. However, now is the time to deflate the so-called “crazy housing price” bubble that has been building up over the past few years. If government policies unintentionally encourage speculative demand, young Koreans in their 20s and 30s may resort to taking out housing loans for investment purposes, only to fall into a cycle of debt once again.
As the general election approaches and President Yoon’s approval ratings remain low in the 30 percent range, the government is rolling out a slew of campaign pledges but not taking effective steps to regain the public’s trust.
The government froze household electricity rates even though the state-run Korea Electric Power Corporation’s deficits amount to $35.5 billion (47 trillion won). The Yoon administration has also taken measures to ban short selling, ease capital gains tax requirements for major shareholders, and abolish the financial investment income tax to appease investors. Additionally, the government has waived the repayment of 800 billion won in Covid-19 relief for the self-employed and exerted pressure on banks to refund 2 trillion won in loan interest. Ironically, these tactics mirror the approach of the Moon administration, which was only concerned with popularity.
