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| Illutration created and copyright by Drake Kim |
The real estate market often behaves like an unpredictable living organism. Just as a tree branch bends in the opposite direction when the wind blows, market movements frequently defy expectations when new policies are introduced. Many believed that lifting the land transaction permit system would drive housing prices down. However, reality is always harsh, and predictions often miss the mark. Instead of declining, property prices skyrocketed. Why did this happen? Let’s take a deeper look at this puzzling phenomenon.
1. Does Deregulation Lower Prices? Absolutely Not.
History repeatedly teaches us the same lesson—expecting regulatory easing to lower prices is often an illusion. A prime example is Japan’s real estate bubble in the 1980s. The Japanese government implemented financial easing policies to stimulate the economy and loosened real estate lending regulations. Instead of stabilizing prices, property values soared, leading to a market collapse in 1991 that plunged Japan into its "Lost 30 Years."
A similar scenario played out in South Korea. During President Roh Tae-woo’s administration, a plan to build two million housing units was introduced to curb rising property prices. However, instead of stabilizing, prices surged as investors saw the increase in supply as a new opportunity. Now, 30 years later, history is repeating itself. The expectation that lifting the land transaction permit system would flood the market with properties and bring down prices has once again proven false.
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| Illutration created and copyright by Drake Kim |
2. The Real Estate Market is a Psychological Game
Legendary investor John Templeton once said, “Sell when the crowd is optimistic, buy when they are pessimistic.” However, in reality, market movements are driven by emotion. Many believe that deregulation will lower prices and wait on the sidelines, but once the restrictions are lifted, they rush to buy, fearing they will miss out. Instead of an oversupply of listings, we see the opposite—fewer properties available and rising prices.
This exact scenario recently unfolded in Seoul’s Gangnam district. When certain areas were removed from land transaction permit zones, many anticipated price corrections. Yet, the market reacted differently. Sellers, expecting price increases due to deregulation, withdrew listings, while eager buyers rushed in. As a result, luxury apartments along the Han River saw price surges of hundreds of millions of won within a single day, raising concerns that a new housing bubble was forming.
3. Is There a Solution?
Yes, but no single policy can magically fix the issue. Stabilizing the real estate market requires long-term structural changes rather than short-term remedies.
- First, increasing supply is about quality, not just quantity. Simply constructing more apartments won’t resolve the problem. Unless homes for actual residents are built in high-demand urban areas, speculative investments will continue.
- Second, real estate policies must align with financial strategies. Controlling prices through interest rate hikes or lending restrictions alone is insufficient. A balanced approach is necessary—supporting genuine homebuyers while curbing speculative demand.
- Third, policymakers must understand market psychology. Policies should be designed with people in mind, not just numbers. Humans are emotional beings, not purely rational decision-makers. Analyzing how the market will react is just as crucial as implementing the policy itself.
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| Illutration created and copyright by Drake Kim |
4. Once Again, History Warns Us
During the Great Depression of 1929, the U.S. government lowered interest rates and expanded credit to revive the economy. However, this only fueled a speculative boom, ultimately leading to financial system collapse. This serves as a crucial lesson—lifting regulations does not automatically restore market stability. Is South Korea’s real estate market heading down the same path?
Yet, every crisis presents an opportunity. True investors move when fear is at its peak, not when the market is overheated. Those who take a long-term approach always emerge as winners.
The mystery of the real estate market will persist. However, one truth remains: resisting short-term fluctuations and focusing on long-term strategies is the only viable solution.
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