The South Korean government is moving to restrict real estate transactions in some areas despite an apparent slump in the overall property market that many say still is the only economic sector keeping the local economy moving forward.

The move comes amid what government officials have called clear signs of speculation driving up prices to "abnormal levels" in certain areas.


"We are witnessing signs of abnormal superheating, such as skyrocketing home prices and unusually high numbers of bids for new houses, in Seoul's Gangnam and other areas where large-scale reconstruction projects are now under way," an official from the Ministry of Land, Infrastructure and Transport said earlier.

"The government is reviewing pre-emptive measures to limit such overheating as such a trend, should it spread to other areas, could place an enormous burden on the entire economy," the ministry official told reporters, asking not to be identified.

The measures will likely include the designation of anti-speculation zones, which will place a five-year ban on the resale of newly built and newly purchased homes in the designated areas, which in turn will prevent short-term gains and thus removing reasons to invest or speculate except for those actually seeking to live in the new houses they purchase.

Such a measure was first introduced in 2000, once placing all three districts that make up the so-called Gangnam area in Seoul under restrictions. Currently, no district remains under such restrictions as the three plush districts of Gangnam were removed from the list in 2011, apparently in the wake of what turned out to be a prolonged economic slump.

In 2012, the growth in South Korea's gross domestic product plunged to a then three-year low of 2.3 percent from a 3.7 percent expansion in the previous year and 6.5 percent in 2010.

Asia's fourth-largest economy is again showing signs of waning, growing 2.6 percent on-year last year, compared with a 3.3 percent expansion in the year before, which local analysts said may have been the reason for the government to leave out any meaningful measures to prevent real estate investment or speculation in its latest policy measures aimed at curbing household borrowing.

Rather, the government had apparently sought to further vitalize the local property market by limiting the number of new homes to be supplied in the future, which the analysts have called an inevitable choice amid continued slumps in the country's exports and domestic consumption, the two other major pillars of growth.

The construction industry alone accounts for less than 4 percent of the country's GDP, but its overall weight on the economy shoots up to over 8 percent, or 15 percent of local consumption, when accompanied by its related sectors that include the home appliances industry, according to the analysts.

South Korea's exports had fallen every single month since the start of last year before posting a 2.6 percent on-year growth in August, followed by a 5.9 percent drop in September.

Local consumption also remains in the doldrums with consumer prices gaining only 1.2 percent on-year in September, the fastest rate of growth in seven months but still far short of the 2 percent target set by the central bank.

Despite what government officials have called an unusually high level of activities in some areas, the real estate market too remains in a slump.

As of end-August, the number of unsold new homes in areas outsides of Seoul stood at 41,206, more than double from 20,565 at end-2014, according to government data.

Also, 24 districts and regions here currently remain under special government care for unsold homes.

Seoul and its three most well-off districts, on the other hand, are showing clear signs of overheating, the ministry officials said.

For instance, an astonishing 4,733 people recently placed their bids for 11 new apartment units in Seocho-gu, one of the three Gangnam districts, while another 36,000-strong bidders did the same for new apartment units in the eastern Gangdong-gu.

Such high competitive rates are apparently pushing up real estate prices to record levels, with new apartments in such overheated areas of Seoul costing more than 40 million won ($35,000) for every 3.3 square meters, meaning an average apartment with 99 square meters of space, usually consisting of three bedrooms and one or two bathrooms, will cost more than $1.2 million.

"The government is closely monitoring the housing market, and will take market stabilizing measures at the sight of growing price hikes or the possibility of speculative movements spreading to other areas," a ministry official said. (Yonhap)