This is Lee Jin-woo's Economy You Can Grasp. Hello, I am Lee Jin-woo. It has been about a month since the government announced its real estate measures on August 8th. Apartment prices in major areas of Seoul still seem to be rising. There are analyses suggesting that the rate of increase has been gradually slowing down, but the market's anxiety remains. In particular, concerns about the supply cliff and occupancy cliff that will hit from the year after next are complicating matters for actual buyers. I wonder if the government can dispel these worries. Shortly, we will interview Kim Heon-jung, a policy officer from the Ministry of Land, Infrastructure, and Transport, to assess the effectiveness of the measures. The Economy You Can Grasp program will also be available on YouTube as a visual radio this Friday, September 6th. Let's get started. This is Lee Jin-woo's Economy You Can Grasp.

Welcome, everyone. How have you been? The moon has been quite busy lately, hasn't it? Recently, I would like to ask how you assess the housing situation, both in the medium term and short term after August 8th. Since June, there has been a continued upward trend in new apartments in Seoul and the metropolitan area. However, even in Seoul, the prices of non-apartment housing and in regional areas are either stable or declining, indicating a differentiation by region. The recent rise in apartment prices in Seoul and the metropolitan area is believed to be influenced by several factors, including the phenomenon of apartment concentration due to the rental market, expectations of interest rate cuts, and concerns about supply, as you just mentioned. However, regarding supply, we noted on August 8th that...

On August 21, measures to manage household debt were announced, and afterwards, we are projecting a long-term downward stabilization. As mentioned earlier, even though we are entering a stabilization phase, prices are still rising. Therefore, we are closely monitoring various related indicators and are actively implementing follow-up measures from the policies announced on August 8. I understand that we cannot immediately flood the market with supply. In any country, any government, the key is to control demand. To adjust demand, there needs to be confidence that supply is sufficient; otherwise, people will rush in a first-come, first-served manner. Ultimately, it all circles back to ensuring that supply flows smoothly.

The issue seems to be whether it is possible. Especially these days, not all apartments are increasing in value; it seems that primarily those apartments that are well-known and located in popular areas near major cities like Seoul are the ones that are rising. These apartments often become targets for people looking to upgrade. For this to happen, there needs to be a belief that similar apartments are being built. To achieve this, we have no choice but to activate redevelopment and reconstruction. Building good apartments on the outskirts of Seoul doesn't seem to be valued highly by potential buyers yet. So, what should we do? Regarding the activation of redevelopment and reconstruction, there seems to be a sentiment that progress is not happening well due to business viability issues. Therefore, in the 88 measures, one of the first policies I pointed out was the redevelopment and reconstruction of urban areas through maintenance projects.

We will quickly supply new apartments, and to achieve this, we have integrated and shortened various procedures. We have also included measures to resolve uncertainties related to the projects. Additionally, there are some issues arising from construction costs, so to address this, we are considering increasing the floor area ratio and raising the prices of public rental housing by about 1.4 times compared to the existing prices. Therefore, the special law and the special law for promoting reconstruction and redevelopment, along with the Urban Development Act, have been enacted and revised as of last Monday. We plan to work swiftly with the National Assembly to ensure that these related laws are implemented quickly. We aim to shorten the period for reconstruction and redevelopment, and regarding apartments...

However, if we purchase villas or multi-family houses throughout the city and use them as rental housing, then if the government or public enterprises buy them, other construction companies will build next to them, buy them, and keep building, which means there will be a continuous supply. It would be nice if we could consistently do that, but why does it always seem that measures only come into play after housing prices rise? Why do we keep having these concerns about increasing prices and the government saying they will buy at higher rates? Above all, the key to the real estate market, especially the housing market, is to mitigate volatility. Managing housing prices stably is essential, and the most significant means to achieve that is to ensure a stable supply. However, since the real estate housing market is also a part of the economy, it does experience some volatility based on economic changes. Therefore, we need various institutional foundations and...

Administrative management and such measures are included in this plan to strengthen and support successful implementation. We intend to place more emphasis on these aspects. To alleviate the situation, we are receiving input from experts and have also addressed various legal deficiencies that existed. I can say that we have made many improvements in that regard. 

Regarding the voices of the citizens, my question was about where we will build apartments this time. That is something that could not have been done two years ago or last year due to financial commitments and decision-making processes, so I understand that. However, there seems to be a question about why we are changing the system after last year's discussions. Typically, reconstruction and redevelopment projects take about 15 years. Through various measures, we have...

We can potentially shorten the timeline to about six years, aiming for approximately nine years. In fact, in the maintenance business, aside from material and labor costs, the most important factor is financial costs. The project costs range from hundreds of billions to trillions, so if we can reduce the time, we believe that the project viability will increase accordingly. Our motto in the maintenance business is that proper maintenance is fast maintenance. We believe that speed is essential. 

I understand. Then, to speed things up, we need to change the law. If there are any steps that can be omitted in the process, will the remaining obstacle to changing the law be the passage through the National Assembly? If that goes through, will there be no major issues? I expect that the National Assembly shares our perspective. However, depending on the ruling and opposition parties, there can be significant differences in viewpoint.

That situation is not a law. Regarding the major premise that procedures should be simplified, and hoping for stability in the housing market and the real estate market, there is nothing different between the ruling and opposition parties. We also aim to communicate more closely with the National Assembly, providing explanations and engaging with other stakeholders in the market. 

Is the issue of releasing the greenbelt something that the government can decide on, and then just proceed to build large-scale apartments here? Are there no other variables? I hope that at least that can be resolved quickly. 

It seems that while the population will decrease, the number of households is expected to continue increasing until 2039, according to the statistics office. In Seoul, there is a shortage of land available for large-scale housing development. On the other hand, the burden of housing costs is quite high, and the birth rate in Seoul is the lowest in the country. Last year, it was 0.72, compared to the national average.

Seoul is known to have a housing shortage of 0.5, and you're saying that there is a lack of homes in this process. Of course, there is some controversy over whether we should release green belts to build houses, but discussing that controversy here might take too much time. For now, let's assume that we will go ahead with the construction and consider whether there are any obstacles in the remaining procedures. If that's the case, we should resolve those issues quickly, announce the plans, and supply homes as soon as possible. However, even after saying we would resolve these issues, a month has passed, and we have only been anxious about it. There are relevant laws and procedures, and we will carry them out promptly. Our expectation is that by around November, we will have a clearer idea of the locations, and we are pushing towards that schedule. If that happens, I believe we will be able to reach a stage for sales in about five to six years. But why does it take three months just to decide on the location?

Is that so? Now, regarding LH and various services related to it, we will conduct services based on the results. Depending on the outcomes, we will determine which areas are the most suitable. Therefore, we will make a comprehensive judgment on how to best preserve the natural environment, including areas that have already been somewhat damaged. This may take a bit of time, so please understand that. 

I believe Mr. Kim Jutaek, the policy officer, is aware that the government sometimes has no choice but to create measures to increase supply when housing prices rise. If there is an increase in housing prices in Seoul, will we consider loosening the greenbelt in this area and push for such measures? Are there any plans or preparations for this in advance? So, if such a situation occurs, what will happen after we decide to loosen the greenbelt?

There is a question about whether to lift the greenbelt, and if a research service is now commissioned, it might give the public the impression that actions are being taken very hastily. This raises doubts about whether the project will be carried out steadily. Therefore, I am asking this question. Above all, as you mentioned, supplying large-scale housing in urban areas is more important than the greenbelt. Redevelopment and reconstruction projects are essential. In Seoul, there are about 3.84 million housing units, with around 4.1 million households in total. Each year, the average supply of apartments has been around 70,000 to 100,000 units. About half of this supply comes from apartments, while the other half comes from non-apartment units. Ultimately, we need to focus on redevelopment projects and also on supplying the non-apartment units that make up about half of the total supply.

It seems that we need to take action. Due to the aftermath of rental scams, the supply of apartments has significantly decreased. Therefore, I believe it is appropriate to focus on these two aspects. The question I asked is whether the green belt will eventually need to be loosened to supply housing if the demand peaks. In that case, when housing prices rise to a certain level, the government should have policies prepared, indicating which areas they plan to release from the green belt. If the decision to loosen the green belt is made only after housing prices increase, it seems plausible, but if they are only now considering where to loosen it, it suggests that they haven't been thinking about it regularly. As for the green belt, we have the 88 measures.

I was thinking that an announcement would be made soon, as this is something that can be resolved in the neighborhood. The large-scale development of green belts in the Seoul area is happening for the first time in 12 years. Originally, there were plans to supply new residential land, approximately 20,000 units, in Seoul and its surrounding areas. We have always been monitoring these aspects, and this time, the upward trend has been quite prominent. We are planning to supply more than four times the original estimate, increasing from 20,000 units to about 80,000 units, with 50,000 units this year and 30,000 units next year. As you mentioned, I always feel a sense of regret that we could have prepared earlier. However, we had initially considered 20,000 units, and due to unexpectedly high demand, we are now looking to add about four times that amount.

There are measures announced this time regarding the non-apartment housing in Seoul, commonly referred to as villas, which are not being built these days for various reasons. The policy includes a commitment to actively purchase and demand the construction of these homes. I understand that this policy has been in place since last year, yet construction and sales have not been progressing well, as reported. This time, they are planning to increase the purchase price by about 1.4 times on average, which suggests that there may be more purchases. The 1.4 times refers to the price for acquiring public rental units in redevelopment projects. So, you mean that the price for purchasing rental apartments from redeveloped apartments is 1.4 times, correct? As for non-apartment housing, in the past year, approximately 30,000 to 40,000 units have been supplied through LH's purchase rental program.

So, there are two main types of rental housing being constructed by LH: one is the rental construction, and the other is the purchased rental. They have consistently done purchased rentals, around 30,000 to 40,000 units, mainly focusing on existing rental properties. About 70% to 80% of these were purchases of properties that had already been completed by the private sector. This time, the new policy is to focus on newly constructed purchased rentals. Before LH starts building, they will conduct preliminary surveys, check the designs, assess the locations, and ensure quality inspections for the housing. They plan to purchase more than 90% of these houses as purchased rentals. Furthermore, rather than the existing 30,000 units, they aim to acquire over 110,000 units, and in Seoul, there will be no limit on purchases. This is significantly different from before, as it allows for rapid supply. Therefore, the so-called villa developers will see this demand and think that LH will purchase from them.

You mean you will work hard to build, right? Yes, now, for various reasons, the private apartment market is quite depressed, so it seems necessary for the public sector to take the lead. Instead of purchasing existing rental properties, we can supply newly constructed homes in favorable locations with good quality. To build a place where families can live comfortably, it seems difficult to do it without spending at least 500 million won. Even if we build as cheaply as possible, looking at an average of 500 million won, if we build 100,000 units, that would require an investment of 50 trillion won. Is that feasible with the funds that LH has? As I mentioned earlier, we had a budget for purchasing around 30,000 existing units. Now, we are significantly reducing the purchase of existing properties and redirecting the remaining budget towards new construction, which is a transition from our current business model. Additionally, as I mentioned, we are looking at 30,000 units.

I mentioned that we would significantly increase the housing supply. Before announcing the 88 measures, the budget authorities had already completed detailed consultations. Therefore, the budget has already been reflected. In the case of LH, when it first launched, it had a debt ratio of 535%. Now, it stands at 218%, which is the lowest debt ratio in history. Notably, the security deposit is also counted as debt. However, the financial debt, which incurs interest, is much smaller than the debt related to the rental housing supply. Thus, if we calculate the debt ratio, it is around 126%. Therefore, I believe that LH has sufficient capacity. Typically, we purchase and rent about 30,000 to 40,000 units. This time, we are planning to increase that to about 12,000 to 20,000 units annually.

It seems that there are about 60,000 more houses being sold. Yes, I understand. In Seoul, housing prices are indeed skyrocketing, but the regional housing market still has its own concerns. While prices do go up, transactions are not happening, and in the long run, people are trying to escape from the provinces to come to Seoul. This creates a connection where Seoul's housing prices also become a concern. What are your thoughts on the regional housing market? 

As I mentioned earlier, the housing market in the provinces is in a very poor state. There are many unsold houses, especially newly constructed ones. Nationwide, there are about 15,000 unsold newly constructed homes, and approximately 13,000 of those are located in the provinces. Therefore, we are preparing for corporate restructuring initiatives.

In September, the first real estate investment trust (REIT) is expected to be launched. Typically, it includes around 300 units at a minimum and can go up to over 1,000 units of housing. The idea is to purchase unsold newly built homes in regional areas at a low price and to engage in rental business. Based on our research, it seems that we could manage a REIT with a yield of around 5.5% or higher. Additionally, there have been announcements regarding tax benefits for unsold newly built homes in regional areas. Following the August 28th Chuseok economic stabilization measures, there was also an announcement that if these unsold homes are purchased and rented out for five years, a 50% reduction in capital gains tax would be granted. Therefore, through such measures, we can significantly address the decline in real estate prices in regional areas.

You weren't prepared? Once it starts, what am I supposed to do? I have been asking if it would be possible, but in reality, housing is not supplied by the government; it is supplied by the private sector. The private sector will supply housing when the economy is good, and they will not supply it if they think the economy will be bad. It operates based on their calculations. So, it's not like housing is supplied whenever there is a need, nor can it be prevented from being supplied just because there is an excess. Therefore, when dealing with housing policies, I imagine there are various concerns. Right now, people are demanding quick measures to control housing prices, so I’m sure you are working hard to prepare. What are the fundamental issues that we need to address? Every time prices rise, there are complaints, and when they fall, there are different complaints. It seems like this cycle keeps repeating, and the frequency is getting shorter.

같아서요. 정책을 견조하게 일관성을 유지하는 것이 무엇보다도 중요하다고 생각합니다. 사실 여러 가지 규제 사항이 많이 있습니다. 정비 사업에서의 절차도 사실 그런 규제들이 많이 있다 보니까 발생하는 것인데요. 과거의 규제들이 그런 규제들을 좀 더 심플하게, 효율화시키고 단순화시킬 수 있는 방안들이 필요합니다. 특히 정비 사업에서는 주민 총회에서 아직 전자 투표가 도입되지 않았습니다. 전자 투표 같은 것들을 도입하는 방안은 이미 저희가 도정법 개정안으로 발의해 놓고 있는 상황입니다. 그런 여러 가지 제도적인 개선을 통해서 주택이 좀 더 안정적으로 공급될 수 있는 기반을 하나하나 더 공고하게 해 나가는 것이 무엇보다도 중요하다고 생각합니다. 예, 알겠습니다. 밖에서 보기에는 좀 빨리 진행되지 않아 초조하게 느껴지지만, 실제로...

It seems that a lot of time is needed to proceed, as there are many procedures involved. We are also trying to shorten the process as much as possible. In fact, just like our employees are working hard, we are also putting in effort to make things happen. Among the 88 housing supply measures, there will be matters that need to pass through the National Assembly. In particular, there will be issues with persuading opposition party members, and that is the most challenging task. I believe that the opposition members have their reasons for opposing, so it would be nice if some of these issues could be resolved. There are various measures that seem to be based on the premise of passing bills that need to persuade the National Assembly. In the last 88 measures, a total of eight bills must pass through the National Assembly. Among them, as I mentioned, there are special law and urban and housing maintenance laws.

This matter is very important. I have explained it a few times. The special law is about shortening the period of maintenance, and it is related to the special law for promoting redevelopment and reconstruction. Overall, the special law on construction pertains to maintenance projects under the Maintenance Business Act, as well as maintenance projects under the Urban Regeneration Act and urban construction projects. There are three types of maintenance projects that are applicable. Therefore, it is important to ensure that the special law is well organized. The existing provisions of the Urban Regeneration Act need to be amended, such as changing the consent rate for reconstruction projects from 75% to 70%.

We are entering into the amendments to the land management law. However, each of these points may be controversial depending on one's perspective. Moreover, it's not just about the differences between the ruling and opposition parties; some lawmakers have different views based on their past experiences and the insights of experts they have heard from. Therefore, I believe it is very important to narrow down these differences. I think I can give you about 30 seconds. When do you think the real estate market will start to show some signs of stability? Just take a guess; it's okay if you're wrong. What can we do? We can just work hard on providing solutions. You’ve asked a very difficult question. Currently, we are a bit hesitant in announcing new measures. While the rate of increase has decreased, prices are still rising, so we...

Above all, it seems important to continue providing signals that housing supply is being smoothly and realistically delivered. We will focus our efforts in that direction. Now, we have Kim Heon-jeong, the housing policy officer from the Ministry of Land, Infrastructure and Transport. Yes, we will convey everything well next Monday at 8:30. This is Jin-woo. Thank you to everyone who listened.

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