Deputy Minister Park Sang-woo for Housing and Land at the Ministry of Land, Transport and Maritime Affairs said the government has been doing all it can to invigorate the housing market in an effort to reinvigorate construction around the country. The government measures to boost the housing market include financial help for first-time home buyers, cutting interest rates on loans for long-term house leasing, and financial support for home remodeling, among others, to invigorate the housing construction market. The government also has been trying to boost the number of rental units, which is far below that of advanced nations. But at the same time he cautions against too high an increase in rental units, as it is part of the welfare program of the government. However, the government will do whatever it can to help the real estate market recover from its current doldrums, which has been impacted by the general economic slowdown caused by the European debt crisis.

Following are excerpts from a written interview with Deputy Minister Park in charge of Housing and Land Policies:

Question: Can you please tell us about the government measures to stabilize the real estate market?

Answer: The government has been trying to stabilize the real estate market through various measures including the May 10 Measures, particularly through the provision of support to stabilize housing prices for the general public and the middle class. First of all, the government will release the house transaction restricted areas, the requirement for house transactions in the designated areas, ease the required period for houses before selling them, and the abolition of regulations forbidding people from winning a second time in the housing lottery for civilian-supplied houses. 

The government also plans to provide funding support to those with real need to buy houses and, at the same time, substantially expand the qualification of people who can get favorable-interest loans to buy houses and expand the amount of those loans, and increase the loan fund for first-time buyers from 1 trillion won to 1.5 trillion won. 

The government has also eased the “one house for one generation” no-tax regulation, while taking measures to bring down the transaction costs. The government also plans to support the invigoration of the supply of city-type houses and generation classification-type apartments, and at the same time ease restrictions on remodeling and spur the home remodeling business.

Q: Despite government measures taken, the real estate market has not seemed to improve due to various economic difficulties ushered in by the European debt crisis. Will you please comment on this?

A: From last year, though, housing construction has been expanding owing to the ease in various market deregulation measures, such as support for tax cuts and financial support increase. Housing construction starts rose to 180,800 houses from January to May this year compared to 550,000 houses for all of 2011 and 387,000 houses in 2010, with financial support for first-time buyers rising from 1 trillion won to 1.5 trillion won this year and additional funds for new home loans. The government expects the housing market to pick up from this year due to those measures.

Q: What are some of the government real estate policies that can be said to be the most successful?

A: The top priority of government real estate policies is the stabilization of the prices of houses. For that, the government has expanded new housing loans and house prices have been stable for some time now and it will continue for a while. The housing construction industry has begun to increase investments in housing construction and many houses are expected to be built from now on.

Q: The prices of houses in local areas have risen substantially. Do you still think housing prices have been stabilized? 

A: The prices of houses have risen higher of late due to cuts in the supply of houses in local regions since the 2008 financial crisis and the long-term slump in the housing market in those regions. But the increase in housing prices remains below the inflation rate and the increase rates have slowed, which is a sign of natural readjustment, we hope.

Q: What could be some of the new measures to be taken by the government?

A: We have already taken various strong measures to cool off the real estate market when it was overheated, short of those that require parliamentary approval. We are contemplating measures to provide loans to first-time home buyers and other house purchasers who intend to live in the homes and not use them for investments, which would help normalize the market if they were to be put into force as planned. We at the government also are considering additional measures tailor-made to help the class of people who suffer from the market readjustment.

Q: What are some of the government measures to expand the ratio of rental houses in Korea to catch up with that of advanced nations?

A: The rental house ratio in Korea stands at around 5 percent of all houses, which is lower than that of advanced nations. Therefore, we have to increase the ratio continuously in the days ahead. But we have to guard against boosting the ratio too much, as it is part of the housing welfare policy. Boosting the number of college dorms, providing financial support for home remodeling and long-term leasing houses, and cutting interest rates on key money for long-term leasing could be more effective. We need a social agreement on boosting the number of rental houses, along with diverse welfare housing programs.

Q: What are the prospects for the housing market amid the general economic slowdown?

A: The housing market trends around the capital area are still bad with the sale of houses down 34.8 percent YoY during the January-June period this year. We feel that the housing price readjustment has been concluded in the period, but we have to consider the economic impact from the European debt crisis and uncertainties triggered by the crisis, which led to a contraction in the desire to buy houses on the part of consumers. The situation, in turn, would lead to the slowdown in the construction industry and related industries and the government should take various measures to spur the housing market.

Q: What are some of the policies to relieve the tight situation in the construction industry?

A: We have to invigorate the housing market first to spur the sale of houses, since that has been the cause of the slowdowns in related industries. The slow execution of the government’s SOC budget has also been hurting the construction industry. But the SOC budget is needed to not only beef up national competitive power in the future, especially the railroad, highways, and subways, but also to enhance the ambient life for the people in the country. Therefore, it must continue to be executed in the future in order to ensure that people in the construction industry get paid for the projects they completed on time, which will resolve the tight situation in the industry.

Low bidding prices could lead to substandard quality of construction, especially for suppliers and subcontractors. We ought to supplement the current bidding system in such a way as to protect the subcontractors.