The government started to improve the price ceiling system… A signal of deregulation?

It appears that the government has begun to improve the system, such as the upper price limit system and the high sale price review system, which have been used as a means of controlling apartment prices.

It is also expected that regulations on buildings, such as officetels and urban living houses, which are in high demand in the city center, will be eased in a forward-looking manner.

An official from the Ministry of Land, Infrastructure and Transport said on the 10th, “We are actively reviewing whether there are systems that the private sector has suggested as an obstacle to housing supply, and whether there are housing and construction regulations that need to be rationally improved according to changes in the times and lifestyles.”

This is in response to Minister of Land, Infrastructure and Transport Noh Hyung-wook expressing his will to improve the system the day before, saying he agreed with the private sector’s demands for regulatory improvement at a meeting with supply organizations attended by representatives of private construction companies and associations.

There was an observation that Minister Roh’s remarks the day before was a ritual ‘lip service’, but it was confirmed that the working department actually started a detailed review to improve the system beyond this level.

Although the specific system improvement plan has not been refined yet, it has been confirmed that the private sector is actively reviewing the system improvement required to expand the housing supply.

In relation to this, Minister Roh said the day before, “I will look at the difficulties faced by the private industry with regard to the high sale price review system, the sale price ceiling system, and the housing business licensing system, and closely examine whether improvements are necessary.” It is time for a prospective review.”

In particular, this is the first time that the Ministry of Land, Infrastructure and Transport has mentioned the possibility of easing the pre-sale price regulation, and attention is focused on whether it will appear as an actual policy change.

In order to stabilize the price of new apartment units, the sale price ceiling system is a system in which the sale price is calculated by adding the appropriate profits of the construction company to the housing site cost and construction cost when selling a house, and then the sale is made below that price. The sale price is calculated within 80% of the surrounding market price.

The presale price cap system, which was implemented for public housing in 2005, was extended to private housing sites in September 2007, but was substantially stopped in April 2015 by drastically lowering the applicable standards when the housing market collapsed due to the global financial crisis.

Then, when the housing market overheated again, the application standards were strengthened in November 2017, and in July last year, it was revived and applied in earnest to private housing sites.

After the reinstatement of the presale price cap system, reconstruction and redevelopment complexes in Seoul failed to calculate the presale price, causing a setback in supply, such as delaying the project schedule.

The housing land cost, which is the standard for setting the sale price, is based on the appraised price, and the cost of high-quality finishing materials is not properly reflected in the sale price.

In fact, Jikbang, a real estate information company, also analyzed that the amount of pre-sale in Seoul last year was only 42% compared to the plan at the beginning of the year due to the price ceiling system and the aftermath of Corona 19.

Dunchon Jugong Apartment (12,32 households) in Gangdong-gu, Seoul, which is considered to be the largest reconstruction project in history, has also been delayed because it has not been able to set the sale price for more than a year due to the effect of the sale price ceiling system.

Seoul Mayor Oh Se-hoon said to social networking service (SNS) on the same day that Minister Noh Hyung-wook’s remarks on system improvement the day before were “welcome” and, “The sale price cannot be decided in the middle of Seoul with the sale price ceiling that does not reflect the reality, so Dunchon Jugong 10,000 immediately. The supply of about 2,000 households is blocked,” he pointed out.

The price ceiling system has recently been criticized by the Board of Audit and Inspection for its system and operation method.

On the 9th, the Board of Audit and Inspection notified the Ministry of Land, Infrastructure and Transport to revise the related enforcement ordinance, saying that the additional cost, which is one of the factors determining the sale price of houses to which the sale price cap is applied, is being set as ‘black’ due to the inadequacy of the system.

In addition, there is criticism that the pre-sale price structure is set lower than the surrounding market price by half, which creates a side effect of ‘lottery sale’ in which profits are returned only to a small number of people.

For this reason, there are voices in the industry calling for the abolition of the price ceiling system altogether.

However, an official from the Ministry of Land, Infrastructure and Transport said, “The scope and timing of the system improvement suggested by the private sector, including the upper price limit, has not been confirmed. drew

The high sale price screening system implemented by the Housing and Urban Guarantee Corporation (HUG) also criticized that the screening criteria were arbitrary, and pointed out that this hindered the supply of housing.

In particular, the two systems are being used as a key means of controlling apartment prices, and it is observed that if the sale price regulation is lifted, the supply of reconstructed complexes in Seoul can also be breathed.

An official from the Ministry of Land, Infrastructure and Transport said, “In the case of the sale price ceiling system, there is a problem in predictability because items that are recognized as expenses and items that are not recognized are different for each local government, and the recognition rate is also inconsistent. said.

“In the past manufacturing era, factories and residential spaces had to be separated, but in the era of the 4th industrial revolution and untact era, a space that can meet various demands is needed as residential and work spaces are convergence now,” he said. The system related to officetels and urban living houses that can accommodate the needs of people is inflexible, so we are reviewing the direction for improvement together,” he added.

The Ministry of Land, Infrastructure and Transport said it plans to additionally collect various opinions from the private sector and industry, and plans to finalize the system improvement plan after consultation with related ministries.

Park Won-gap, senior real estate expert at KB Kookmin Bank, said, “It is positive that the government is looking forward to system improvement such as the sale price ceiling system. The improvement of the system for the recovery of excess profits from reconstructions linked to the upper price limit system should also be considered,” he said.

Shim Gyo-eon, a real estate professor at Konkuk University, said, “The government seems to be thinking about ways to increase supply and stabilize the housing market through deregulation. It is uncertain whether the government will respond to the accusations, so it is not an easy situation for the government to actively implement policies even if there is a will,” he said.

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