Lesson 70 : [Price cap reshaping property market]

[MTM 운영자]

[Price cap reshaping property market]

Local builders are speeding up their ongoing apartment construction projects and are preparing cost cuts in a move to soften the impact of the upcoming price cap on their bottom lines.

The builders are moving fast to acquire licenses to build apartments before September, when the government will place a price cap on the new apartment supply.

The price ceiling was legislated by the National Assembly earlier this year as part of efforts to cool the overheated property market.

Consumers and civic groups have consistently argued that the apartment developers have overblown house prices in recent years.

Under the new rules, government officials will set the profit margin for builders after monitoring the accounting books of the new apartment projects.

About 5.5 percent of the sales price will be offered to the companies as operating profits.

Fearing that the price limit will squeeze earnings from the new housing supply, construction firms are advancing the schedule of apartment projects.

Around 67,000 new apartments will be on sale this month alone, more than double the supply during the same period last year.

The figure means that builders are pushing to sell the new apartments quickly to stave off the price limit.

The Construction Ministry estimates the regulation will cut the new apartment price around 20 to 25 percent, which will help drag down the overall real estate prices in the coming years.

The slashed prices are also prompting constructors to reduce the cost and red tape in their business.

Builders increasingly shun high cost materials and standardize the housing architecture in an effort to maintain the profit margin under the lower sales price.

A wide variety of cost reduction programs are introduced into offices, according to the industry sources.

The new regulation also affects consumers in the property market.

Home buyers are delaying their purchases of new apartments in expectation of falling prices in the coming months.

Apartment prices have been depressed so far this year as consumers become hesitant about buying them amid the strengthening regulations.

The average apartment price in Seoul rose slightly over 1 percent year-on-year in the first half of the year, far below the 13.35 percent rise of a year earlier.

Experts say the downward pressures on the property market will grow because of government regulations and rising interest rates.

By Ko Kyoung-tae

      ■ Vocabulary

l acquire

l licenses

l legislated

l squeeze

l regulation

l hesitant

l maintain

l shun

▶Discussion Questions.

1.  Do you think that the regulation is good for the consumer?

2.  Do you think the regulation is necessary?

3.  Are you familiar with the terms “price cap”, “price ceiling” and “red tape”?

4.  Who will profit from the new regulation?

5.  Why this regulation necessary for the home buyers?

6.  Are the average home buyers blocked out of home buying because of the rising costs?

7.  What will the builders do to make money after the regulation is in force?

8.  How do you think this regulation will affect the building industry?

9.  Will there be a slowdown in new construction projects because of the regulation?

    10. Do you think that the builders will go for cheaper material while keeping the house price the same?