[비즈한국] It is a highly unusual move for Lee Sang-kyung, First Vice Minister of Land, Infrastructure and Transport, to have presided over an informal advisory meeting with five real estate experts last week. While informal consultations at the Ministry of Land, Infrastructure and Transport (MOLIT) are typically handled at the director-general level, this is the first time the First Vice Minister, who oversees housing policy, has stepped in directly. Even more noteworthy is that the meeting included experts often labeled as “crash theorists” in the market, and discussions touched on content contrary to the current administration’s policies without reservation.
This suggests that the real estate supply measures scheduled for announcement between late August and early September could be a turning point in policy paradigm, going beyond mere quantitative supply. The remark by Kim Yong-beom, Policy Chief at the Presidential Office, that “it is a miscalculation to assume tax money won't be used to stabilize housing prices,” also demonstrates the Lee Jae-myung administration’s resolve to mobilize all policy tools if necessary.
It is significant that Minister of Land, Infrastructure and Transport Kim Yun-deok described the June 27 measures as a “partial treatment.” In fact, the real estate market cooled rapidly following the implementation of the measures. The growth rate of Seoul apartment prices slowed by 62.8% from 0.43% to 0.16%, while trading volume and transaction values plummeted by 75.5% and 78.3%, respectively. Trading volume in the three districts of Gangnam also fell by 59.6%, tempering the overheating trend.
However, this is likely a temporary phenomenon caused by demand suppression. Park Hap-soo, a professor at Konkuk University, pointed out, “Wealthy individuals who don't need to borrow more than 600 million won for a mortgage when buying a 1–2 billion won apartment are already outside the reach of these loan regulations,” adding, “Once they judge that the time is right while watching whether prices fall, they will start moving at any time.”
Currently, the market is in a state where latent demand is waiting on the sidelines. If the supply measures are not effective, there is a high possibility that housing prices will return to an upward trend in the second half of the year. This is precisely why the government is staking its survival on supply measures.
The 3rd Generation New Towns, announced by the Moon Jae-in administration in 2018, aimed to supply 1.8 million households across six districts, but even seven years later, they have yet to be properly implemented. Minister Kim Yun-deok’s emphasis on “making the 3rd Generation New Towns speedy and well-structured” is interpreted as the Lee Jae-myung administration’s intent to conduct a full review of existing plans.
In particular, accelerating large-scale development projects such as the Namyangju Wangsuk district (66,000 units) and Hanam Gyosan district (32,000 units), and resolving issues in the delayed Gwacheon district (7,000 units), appear to be key tasks.
According to plans released by the Ministry of Economy and Finance, the government intends to supply 15,000 new public housing units by utilizing idle urban land such as the Seoul Seongsu-dong Police Cavalry site, the Gwangmyeong Tax Office, and the Seoul Immigration Office, while also advancing the supply of 20,000 units planned for 2035 to provide a total of 35,000 units.
This is a strategy to reduce the housing burden on actual residents by providing affordable housing within city centers. Being able to secure public housing in downtown Seoul is expected to have significant practical cost-saving effects as it saves on commuting expenses and time.
President Lee Jae-myung’s remark at a cabinet meeting, pointing out that “it is taken for granted that developers add a certain profit margin to public land prices,” and that “they are creating countless bogus construction firms, causing bid ratios to reach hundreds to one,” foreshadows a total overhaul of the Korea Land and Housing Corporation (LH) business structure.
Currently, LH has maintained a structure of developing public land and then selling it to private construction firms. This process gave rise to the “bee-swarm bidding” and “lottery presale” problems. Construction firms repeatedly used affiliates and paper companies to secure land before transferring business rights to their main construction entities, which ultimately led to higher presale prices.
There is a high possibility that LH will shift to a model where it handles land development, project execution, and implementation, while hiring private construction firms only for simple construction. This means restructuring the business to focus on public housing distribution and private-participation public housing projects.
While such changes help stabilize presale prices, side effects such as an increase in LH’s financial burden are also anticipated. Currently, LH maintains a “cross-subsidization” structure where profits from land sales offset deficits from public housing development; if this structure is changed, increased government fiscal support will be inevitable.
First Vice Minister Lee Sang-kyung has consistently advocated for the “recouping of development gains.” President Lee Jae-myung also stated, “Excessive profits gained through reconstruction must be returned for the benefit of society.” This means it has become more likely that the Reconstruction Excess Profit Recovery Tax will be levied in practice.
Currently, the tax applies to 58 complexes nationwide, with an average expected burden of 103.28 million won per union member. With some complexes in the Gangnam area facing up to 450 million won, reconstruction unions are deeply concerned.
It is a positive signal that Minister Kim Yun-deok stated, “We are actively reviewing plans to increase supply volume through higher floor area ratios in reconstruction projects.” However, it is highly likely that conditions such as increasing the public rental housing ratio or strengthening public interest requirements will be attached in exchange for the floor area ratio incentives.
While this is an attempt to kill two birds with one stone—securing project viability and strengthening public interest—there are concerns that it may dampen private participation. This is because if the public sector takes a large share of the profits after granting a higher floor area ratio, it is difficult to expect active private participation.
The Lee Jae-myung administration has announced that it will expand the long-term public rental housing ratio from the current 8% to 10% by 2030. It plans to supply 1.1 million public housing units to achieve this, but the realistic constraints are significant.
Public rental housing is a business where losses are structurally inevitable. While LH’s revenue from loss-compensation projects is 11 trillion won, accounting for 70.7% of total revenue, the operating profit margin has recorded a deficit for three consecutive years at –6.9%. Expanding public rental housing is likely to further increase this deficit.
To overcome these limitations, the government is actively utilizing public-supported private rental housing. In the recent second open recruitment, 10,842 households in 14 regions nationwide were selected, more than double the scale of the first recruitment (4,102 households).
Since this method involves the private sector securing land and Real Estate Investment Trusts (REITs) supporting the project costs, construction firms can secure project financing at lower interest rates even in high-interest environments, leading to increased private participation.
Policy Chief Kim Yong-beom’s remark that “it is a miscalculation to assume tax money won't be used to stabilize housing prices” marks an important turning point in the Lee Jae-myung administration’s real estate policy. President Lee’s campaign pledge that “I will not stabilize housing prices with taxes” has effectively been revised.
This appears to reflect the realistic judgment that it is difficult to stabilize housing prices in the short term solely through supply measures. While 3rd Generation New Towns or idle land development take years before actual housing is supplied, market expectations and speculative demand appear immediately.
In particular, it signals to the market that if supply measures fail to take effect, the government may pull out tax cards such as strengthening holding taxes, imposing heavy capital gains taxes, and adjusting acquisition taxes.
The real estate measures to be announced between late August and early September are expected to be the meeting point of the Lee Jae-myung administration’s policy philosophy and pragmatism. While maintaining the principled position of “not stabilizing housing prices with taxes,” it demonstrates a pragmatic approach to mobilize all policy tools when necessary.
The key is a fundamental solution through increased supply. The primary goal is to increase actual housing supply by improving the speed of 3rd Generation New Towns, utilizing idle state-owned land, and restructuring LH’s business model. However, because these supply measures take time to become effective, it seems that supplementary measures, such as tax policies, are being prepared for the short term.
First Vice Minister Lee Sang-kyung’s unusual expert advisory meeting is a positive sign that the government is gathering diverse opinions for balanced policy decision-making. Hearing honest opinions from experts, including “crash theorists,” is interpreted as an effort to increase the realism and effectiveness of the policy.
Ultimately, these supply measures will serve as a litmus test for the sincerity of the Lee Jae-myung administration’s real estate policy. Presenting a fundamental solution of supply expansion while leaving room for policy flexibility based on market conditions can be evaluated as a realistic and balanced approach.
The landscape of the real estate market is expected to change significantly depending on the specific details of the policy to be announced in a few weeks. In particular, changes to the 3rd Generation New Town implementation methods, the scope and conditions of reconstruction deregulation, and the realism of public rental expansion plans are expected to be the major focus of the market.
Kim Hak-ryeol, head of the SmartTube Real Estate Research Institute and famous by his pen name ‘Pasyong,’ previously served as a team leader at the Real Estate Research Division of Gallup Korea. He operates and hosts the Naver blog “Pasyong’s World Exploration” and the YouTube channel “Stew TV.” His books include “The Power of Gyeonggi-do Real Estate (2024),” “Absolute Principles of Seoul Real Estate (2023),” “The Future of Incheon Real Estate (2022),” “Kim Hak-ryeol’s Absolute Principles of Real Estate Investment (2022),” “Future Map of South Korean Real Estate (2021),” “From Now On, Only Places That Will Rise, Rise (2020),” and “South Korean Real Estate User Manual (2020).”