The government on Monday announced a set of measures aimed at revitalizing the country's sluggish real estate market, including tax breaks for first-time homeowners and a cut in supply of new homes to keep prices from falling.
The measures are the first of their kind under the Park Geun-hye administration, which came into office late February, but they mark a complete turnaround from the previous policy where the government sought to curb housing prices by increasing supply.
"The government will break with its earlier stance of suppressing demand and expanding supplies that was adopted during a phase of price hikes, and seek to ensure an early recovery of the housing market through tax and financial incentives, along with relaxation of its regulations and its involvement in the market," the Ministry of Land, Infrastructure and Transport said in a press release.
The move comes as the country's real estate market, especially the housing market, is undergoing what many believe to be the worst downturn in the country's history, causing serious problems for the country's construction industry and the whole economy.
"A prolonged housing market slump could come as a burden on the overall macroeconomic situations," Finance Minister Hyun Oh-seok said in a meeting with other key policymakers. He concurrently serves as the deputy prime minister in charge of overall economic affairs.
"If such a slump deepens and drags on, it could delay the recovery of both private-sector and construction investment and also have a negative impact on (the country's) financial health," he added.
Suh Seung-hwan, minister of land, infrastructure and transport, said the ongoing recession in the property market may also threaten the very livelihood of the people.
"Transactions are shrinking extremely while an instability of rental fees continues to persist as potential buyers are forced to rent instead," he said during a press briefing.
There were over 73,000 unsold new homes in the country as of the end of February, the ministry said earlier. The average price of South Korean homes dipped 0.26 percent from a year earlier in January, posting an on-year drop for 10 consecutive months.
To curb the apparent oversupply of homes, the government has decided to cut the number of new public housing units from the current 70,000 per year to 20,000, and to limit the size of all new public housing units to below 60 square meters.
In addition to cutting supplies, the government seeks to encourage house purchases through various tax incentives and financial support.
Any household with a combined annual income of less than 60 million won (US$53,800) will be completely exempt from the acquisition tax when they purchase a house worth less than 600 million won and 85 square meters in space, according to the ministry.
The total amount of the government mortgage fund will also be doubled from 2.5 trillion won to 5 trillion won to offer mortgages to more people. The annual interest rate on government mortgage loans will also be lowered from the current 3.8 percent to between 3.3-3.5 percent.
Monday's measures also include incentives for multiple homeowners.
Anyone who purchases a new or unsold housing unit of less than 900 million won will be completely exempt from property sales taxes for five years following the purchase.
Many of the proposed measures are still subject to parliamentary approval, but the government said it will work to implement them at the earliest date possible.
"The government believes these steps will be an opportunity for the real estate market to free itself from excessive government involvement and regulations in the past and restore its ability to self-adjust," it said.
Market observers welcomed the latest government measures, noting the biggest problem was an oversupply of homes.
"The problem stemmed from the fact that the young had no means to buy homes while the market was becoming saturated with homes for sale as baby boomers reached retirement age," an expert said.
However, an official from the Korea Housing Association warned of a possible backlash should the government fail to secure parliamentary approval.
"If the normalization measures are not implemented at an early date or even fail to be passed (by the National Assembly), the credibility of government policies will be seriously undermined, which may foster an even greater public pessimism, leading to an even longer recession," said Kim Dong-soo, an official from the association.