Seoul mayor urges government to maintain long-term capital gains deduction, warns regulations are deepening housing instability

Seoul Mayor Oh Se-hoon speaks during a Cabinet meeting chaired by President Lee Jae Myung at Cheong Wa Dae on Tuesday. [Yonhap]

Seoul apartment prices are rising across the board — sale prices, jeonse and monthly rent all climbing simultaneously in what analysts are calling a "triple rally" — and Seoul Mayor Oh Se-hoon has responded by delivering to the central government eight proposed institutional reforms aimed at restoring market function and securing a stable housing supply base.

On Tuesday morning, Oh attended the first Cabinet meeting chaired by President Lee Jae Myung since the launch of the ninth elected municipal administration, then held a briefing at Seoul City Hall to announce the "Eight Policy Tasks in Three Areas for Normalizing the Seoul Real Estate Market," a set of proposals submitted to Cheong Wa Dae and relevant ministries including the Ministry of Land, Infrastructure and Transport, the Financial Services Commission and the Ministry of Finance and Economy.

"Supply is what stabilizes the market, and supply is what allows young people and ordinary citizens to plan for their futures again," Oh said. "Housing policy is the policy closest to people's daily lives, and I ask that the government actively reflect these proposals in its housing policy."

The proposals cover three areas: private redevelopment projects, private rental housing and taxation.

On private redevelopment, Oh proposed raising the loan-to-value ratio on relocation loans to 70 percent, easing restrictions on the transfer of union membership status, and relaxing the legal floor-area-ratio ceiling for private redevelopment projects by 1.2 times. For private rental housing, the proposals call for easing the loan-to-value ratio for purchase-type rental business operators, exempting them from the comprehensive real estate tax aggregation, and introducing a corporate private rental operator regime. On taxation, Oh recommended freezing the fair market value ratio, maintaining the current long-term capital gains special deduction, and adjusting the property tax and comprehensive real estate tax base to reflect the rate of inflation.

The Seoul Metropolitan Government believes that regulation-heavy real estate policy has produced side effects deepening housing insecurity for Seoul residents. The city's assessment is that the Lee Jae Myung administration's regulation-focused approach has delivered only limited market-stabilizing effects while suppressing supply and increasing the housing burden on jeonse and monthly-rent tenants. Seoul apartment sale prices rose 11 percent year-on-year as of May, and despite the government's Oct. 15 measures last year — which designated all of Seoul as a regulated zone and land transaction permit zone — the upward trend has been spreading to outlying districts.

Rate of change in apartment prices by Seoul district, based on the Korea Real Estate Board's national housing price trend survey (monthly apartment sale price index). [Provided by Seoul Metropolitan Government]

Apartment sale price index based on the Korea Real Estate Board's national housing price trend survey (monthly apartment sale, jeonse and monthly rent composite price index). [Provided by Seoul Metropolitan Government]

Jeonse prices rose 6.8 percent over the same period, the highest rate in 11 years, and the share of renewal contracts climbed to 55.4 percent as of last month, indicating that residents are increasingly unable to move. Monthly rents rose 6.6 percent over the same period — the highest increase since records began — and in some areas the monthly rent for small studio units has roughly doubled compared with last year.

Apartment jeonse and monthly rent price index based on the Korea Real Estate Board's national housing price trend survey (monthly apartment sale, jeonse and monthly rent composite price index). [Provided by Seoul Metropolitan Government]

The Seoul Metropolitan Government said it is taking seriously the structural hardships facing end-users — including young people, newlyweds, single homeowners and long-term rental operators — as documented through on-the-ground cases of policy harm experienced by each group.

"As home prices have surged, demand for the Godeok Arteon public rental housing for newlyweds has exploded, with competition reaching as high as 1,253 to 1, and there are cases of people in their 40s and 50s leaving Seoul because they cannot find housing to move into," a Seoul city official said. "Government-level institutional improvements are needed to restore market function centered on end-users and to establish a stable housing supply base."

hope@heraldcorp.com