Curbs on apartment prices

Presale price ceiling system may rattle property market

On Tuesday the government approved a controversial scheme to cap presale prices of apartments to be built on private land. It plans to announce a list of "overheated speculative areas" early next month which will be subject to the price cap. The list is likely to include Seoul's affluent southern districts and other speculation-prone regions.

The presale price ceiling system was first adopted in 2007 to curb surging prices under the liberal Roh Moohyun administration. However, it failed to stabilize apartment prices then, and the real estate market only stabilized after the global financial crisis hit Korea in 2008.

The government has now revived the price ceiling to put the brakes on soaring apartment prices, especially for those in southern Seoul. President Moon Jaein and his economic aides appear to believe that overall housing prices will stabilize if presale prices of new apartments are kept at a certain level.

However, it is doubtful whether the strong anti-speculation plan will be effective in stabilizing the property market. More than anything else, the revived price cap may trigger a shortage in the supply of new apartments. True, apartment prices have been rising in recent months amid fears that new units will be scarce following the implementation of the policy.

Putting a cap on presale prices of apartments will also enable a limited number of successful applicants to win huge windfalls owing to the big difference between presale and market prices. The land ministry says it will lengthen the minimum resalable period from four years to 10 to block speculative demand. But it's questionable if this measure will curb wealthy investors' speculation.

The price ceiling system certainly cannot be a fundamental solution to the volatile housing market. Rather, the government's intervention in determining the cost of private housing could cause adverse effects such as a surge in apartment prices. The administration should monitor the housing market more carefully to see if the system works properly.