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Moon’s Property Rules Weigh on South Korea’s Growth

Jiyeun Lee and Jaehyun Eom
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Moon’s Property Rules Weigh on South Korea’s Growth

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President Moon Jae-in came into office in 2017 pledging to rein in South Korea’s runaway housing prices. Progress toward that goal has brought an unintended consequence: slower growth.

While a slump in exports tends to get the blame for what’s turning out to be Korea’s slowest annual expansion in a decade, it’s weakness in the building sector -- a problem partly of the government’s own making -- that was the larger drag on the economy last quarter. Economists say it is also likely to be the biggest negative in the coming year.

Revised data showed Tuesday that South Korea’s economy expanded 0.4% in the third quarter from the previous three months, with construction investment shaving 0.9 percentage point off the reading, the biggest downward weight.

Moon took office on a populist platform, promising to clamp down on corruption and address inequality by raising minimum wages and stopping home prices from going up so fast. To tamp down speculation in the real estate market and stabilize prices, the administration introduced more than a dozen measures, including tighter lending rules and higher property taxes for more expensive homes. Last month, the government set pre-sale price caps on some Seoul apartments.

The measures have failed to stop dramatic price gains in affluent neighborhoods like Gangnam, where apartment prices rose more than 20% during the two and a half years under the current administration, but they have had some broad benefits.

Household debt growth has moderated for 11 straight quarters and apartment-price appreciation has slowed nationwide. Since Moon’s inauguration, average purchase prices across the country have risen just 3.5%, according to prices compiled by KB Financial Group.

Speaking on national television last month, Moon said he was prepared to do even more to curb prices. “The government will not use the property market as a means to boost growth,” he said.

Still, with construction accounting for about 15% of South Korea’s economy, overall growth has instead taken a hit. While most economists and the central bank expect growth to pick up in 2020, with most sectors including exports rebounding, construction investment is forecast to extend its contraction.

“The property market was due for a correction after pre-sales of apartments peaked in 2015, but government regulation is adding to the delay in recovery”, said Stephen Lee, an economist at Meritz Securities in Seoul.

The Construction & Economy Research Institute of Korea said falling construction investment will subtract 0.36 percentage point off 2020 economic growth, and reduce job creation by 72,000. Last week the Bank of Korea, which cut its growth forecast for next year, said it sees construction investment shrinking into 2021.

“Recovery in the sector remains unsure even in 2021 if the government’s policy stance on regulating the property market remains undeterred,” said Hong Junpyo, a fellow at Hyundai Research Institute, who said construction will also be the biggest drag on next year’s growth.

(Updates with revised 3Q GDP in third paragraph.)

--With assistance from Sam Kim.

To contact the reporters on this story: Jiyeun Lee in Hong Kong at;Jaehyun Eom in Seoul at

To contact the editors responsible for this story: Malcolm Scott at, Jason Clenfield, Paul Jackson

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