“…It is short-term overheating.”
Lee Chanho overcame the dreadful silence and answered so.
“According to the current findings of our National Data Agency, it has been revealed that a considerable number of overseas corporations have purchased homes.”
“Overseas corporations?”
“Yes. Foreign REIT fund companies that mainly deal in real estate.”
“Why would private funds buy Korean real estate?”
“The assessment is that the KOSPI and NASDAQ have risen too sharply in too short a period of time. A correction seems inevitable for a while, so it appears they shifted their asset allocation toward real estate.”
Kim Sangcheol asked again, his face showing that he could not accept it.
“Even so, I don’t understand. Is it possible for housing prices to rise three weeks in a row just because private funds bought a few apartments?”
“That… does not seem to be a matter of private funds simply buying a few apartments.”
“Then?”
“According to the ministers’ reports, P2P loans related to real estate have increased greatly as of late. Of course, we have been restricting P2P lending through various regulations, but it appears the REITs have bypassed them through all sorts of expedients.”
“Are you saying they bypassed our government’s lending regulations?”
“Yes, that is correct. As a result, cash liquidity seems to have flooded the market and stimulated housing prices.”
After the long explanation, Kim Sangcheol rose from his seat.
“Good. Then what countermeasures have our ministers come up with?”
“Yes. This is the proposal we discussed with the ministers today.”
Kim Sangcheol buried his head in the papers for some time.
At the end of an intense marathon meeting, today’s cabinet meeting produced nine regulatory measures.
The speculative overheating districts were expanded from the three Gangnam districts to Mayongseong and Nodogang, and even areas in Gyeonggi-do adjacent to Gangnam, such as Gwacheon and Bundang, were placed in extremely harsh shackles.
Nor did it end there.
In these speculative overheating districts, the LTV was not only restricted from 70% to 40%, but massive capital gains taxes were imposed as well. Not only that, all redevelopment was blocked so thoroughly that not even a shovel could be lifted in speculative overheating districts, and they decided to strengthen the greenbelt zones.
Nor did it end there.
They decided to reinforce tax investigations through Bureau 3 of the National Tax Service. People in their thirties and forties who bought apartments in speculative overheating districts would be dragged before the National Tax Service from now on and made to thoroughly explain the source of their funds. Not only that, real estate transactions between family members, which had long been considered hotbeds of irregular inheritance, would also be strictly cracked down on.
Nor did it end there.
They decided to further expand the comprehensive real estate holding tax, centered on multi-homeowners. In particular, by making the officially assessed land values—which showed a large gap from actual sale prices—more realistic, they made it so homeowners would lose a fortune just by breathing.
Nor did it end there.
They decided to take action against peer-to-peer loans in the regulatory blind spot, and to monitor, through every financial authority in the government, whether lending regulations were being properly carried out. They decided to regulate all kinds of expedient and illegal loans so that the LTV limits would be obeyed not only in the primary and secondary financial sectors, but in every financial sector whatsoever.
“Well… I quite like this much.”
When he finished reviewing the documents over the course of an hour, the president’s face was slightly brighter than at first.
Perhaps gaining confidence from that, Lee Chanho’s voice rose.
“Yes, Mr. President. We cabinet members prepared these nine regulatory measures with the resolve to smash them from the very first blow.”
“I like that resolve very much. But tell me. These nine regulatory measures seem far harsher than the ones during the real estate surge. Aren’t they too excessive?”
“That is precisely why they are regulations. After discussion among the cabinet members, we judged that the previous administration’s failure in real estate was due to half-hearted regulations.”
“They failed because they were not firm enough?”
“That is correct. If we show how strong the government’s will is to rein in real estate, speculative forces will never be able to enter the Seoul housing market.”
Lee Chanho raised his voice.
“In fact, this is not the end. We cabinet members have also prepared Plan C.”
“Plan C?”
“It should not happen, but it is our fallback if these regulatory measures do not work. We will expand the speculative overheating districts to all of Seoul and block every redevelopment project so that not a single shovel can be lifted. To prevent controversy that only the cash-rich can buy homes, we will strengthen the comprehensive real estate tax on multi-homeowners much further, and if that still does not work, we will expand the speculative overheating districts to the Gyeonggi area as well.”
Kim Sangcheol nodded as if satisfied.
“I like it. But some are pointing out that regulations are not everything. Are there any loopholes in our regulatory measures?”
“I can state with certainty that there are none.”
Lee Chanho spoke in a voice overflowing with confidence.
“The market can never beat regulations.”
*
[It Worked Again: Housing Price Rise Slows After Government Announces June 13 Measures]
[Korea Real Estate Board: “Sharp Upward Trend Has Weakened Greatly, Signs of Decline in Some Areas”]
[Blue House: “Real Estate Is Not an Object of Investment, but a Product of Coexistence. We Will Turn Purchase Demand into Jeonse Demand by Strengthening the Lease Protection Act”]
[Ruling Party: “2+2+2 Bill to Be Proposed Within This Month, Healthy Rental Market to Be Created by Strengthening Tenants’ Rights”]
The June 13 Measures, announced one month after signs of a price explosion appeared, had a very great effect on the market.
As the number of speculative overheating districts increased to twelve, Gangnam apartment prices faltered.
When the bellwether of the Korean real estate market faltered, this soon spread to adjacent areas.
One week later, it was confirmed that apartment prices across all of Seoul had fallen sharply. Thanks to Bureau 3 of the National Tax Service, which was running rampant like a loan shark, a great many irregular apartment inheritances were uncovered, and the national tax coffers became very full.
“Team Leader Lee… I think we need to revise our portfolio a bit.”
Director Yu of the Alternative Investment Office said that to me as he watched the news.
The external managers handling our 50 trillion won were mostly concentrated in Seoul real estate.
“Why?”
“What do you mean, why? The moment there were signs of a rise, the government put out rat poison. The June 13 Measures are truly the strongest regulatory package I’ve ever seen. They’ve blocked all the loans and raised assessed land values and the comprehensive real estate tax too. Do you think Seoul apartments will rise?”
Director Yu turned pale.
I was surprised too. I could see the government’s will to stabilize real estate by any means possible. After all, they had poured out the regulations from the real estate surge all at once.
“Don’t worry too much. Whenever real estate measures are announced, the upward trend flinches a little, doesn’t it?”
“No, this time it’s on a different level. Seeing Prime Minister Lee Chanho’s interviews with the press, it looks like they’ve even prepared Plan Z. He says if housing prices still don’t come under control, they’ll designate all of Seoul as speculative overheating districts. They might lower the nationwide LTV to 40%. I can’t say for sure, but the government’s will seems very firm.”
“Well, weren’t there regulations like that during the real estate surge too?”
“This is different from back then. During zero interest rates, it couldn’t be helped, but we’re not at zero interest rates now, are we?”
“Looking at the Fed’s moves, I think the U.S. will lower rates too. Korea will definitely be affected by that.”
Before the nagging could continue, I quickly gathered my things and stood up.
“Hey, Team Leader Lee. Where are you going?”
“I told you yesterday. I have an important meeting in Seoul today.”
“No, are you really going to just sit and watch this? We should exit before the real estate cold wave caused by regulations continues. We need to hurry and inform our external managers of revised instructions.”
“Director. Don’t worry at all. It will rise.”
“What?”
I grinned as I spoke.
“No fundamental solution has been announced. How could reducing supply rein in Seoul apartments? It’s only a matter of time. Once speculative fever catches on, the government’s regulations will become a guarantee of a price explosion.”
*
“…Pardon? You want us to buy up the Seoul housing market?”
CEO Ming, whom I met in Seoul for the first time in a while, could not hide his bewilderment after hearing my explanation.
“Yes. With the recent strength of the NASDAQ and KOSPI, Changcheng Fund must have plenty of cash assets it can mobilize.”
“No. On the contrary, because it’s a boom, we don’t have much cash. Most of our assets are tied up in stocks right now.”
“Then sell them and buy the Korean housing market.”
“P-Pardon?”
CEO Ming asked, sweating profusely.
“I’m sorry, Team Leader… but what is the reason?”
“Does an investor need some special reason to purchase assets? I think they’ll rise.”
“…What are you looking at that makes you think that? After seeing your purchase order, every one of our employees investigated Korean real estate. But it looked hopeless.”
CEO Ming held out the documents.
“Because of the recent price rise, the Korean government has put forward no fewer than nine regulatory measures. But if you look at the contents one by one, prices simply cannot rise.”
“Is that so?”
“Of course. They’ve blocked home purchases with lending regulations and increased the tax burden with a massive comprehensive real estate tax. Then even people who already own homes are likely to put them up for sale, so how could real estate prices rise?”
I smiled bitterly.
“I don’t really know either. Why does real estate rise anyway?”
“…Team Leader?”
“I’m sorry, but my conclusion is different from yours. The stronger real estate regulations become, the more prices will rise.”
“Pardon?”
“Once speculative fever catches on, people interpret government regulations as certificates guaranteeing apartment price explosions.”
“Isn’t that too vague an expectation?”
“I’m speaking based on data. Korean real estate has always been like this.”
I smiled awkwardly.
In truth, Seoul real estate does not rise because regulations fail.
If you asked a Korean person to choose between one Eunma Apartment unit and ten apartments in the provinces, would anyone really choose the provinces?
Ultimately, the fundamental solution is to break free from the Republic of Seoul and implement a powerful population dispersion policy… but politicians who even bring up such discourse of the times have gone extinct, so it seems far off in the future even now.
The government and ruling party blocked the supply of Seoul apartments through enormous regulations on the capital area, but they did not announce the truly important relocation to the provinces.
And if my memory was correct, blocking demand eventually showed its limits. Since they had smashed supply, a critical point naturally came when demand rose even higher, and the speculative fever that exploded then reached a level where no government measure worked, no matter what was announced.
In my original memory, that was something that happened four or five years later, but I was merely bringing it forward a little.
“Then how much…?”
“How much in assets can Changcheng Fund mobilize right now?”
“Because we bought Russian bonds with every bit of profit we made, we don’t have that much in assets. About… 20 trillion?”
“That much ammunition is enough. Please convert it to cash as quickly as possible. And as soon as possible, whether by setting up a real estate corporation in Korea or by going through Chinese Mr. Wangs, begin purchasing.”
“…We should purchase only the places marked on this map, correct?”
“Yes. Only speculative overheating districts, without fail.”
CEO Ming lowered his head with the face of a man who had lost the world.
“Team Leader… Well, to be honest, because of the results you’ve always shown so far, I do not doubt your portfolio. But as far as I know, the Korean government’s regulations this time are quite substantial. Will Seoul real estate really rise despite that?”
I answered with a calm face.
“Yes, it will rise. Regulations can never beat the market.”