“‘Ouse? You were lucky to ‘ave a ‘ouse!”

With apologies to Monty Python, today’s Joongang Daily carries a story about the trials of buying property in Korea which is revealing on two levels. Firstly it shows how inefficient government is in regulating markets. The government limits the amount that licensed financial insitutions can loan, but that doesn’t meet demand, therefore people go to unlicensed institutions and get fleeced. It’s the people at the lower end of the income scale that need more support, but they are the ones that are penalized by a system that limits their access to capital.

Secondly, the article rounds out by pointing out that the foreign financial lenders who will provide up to 85% of a home’s value at 6% interest are cashing out (the domestic banks are the only ones that are restricted by the government’s regulations). Mortgaging is essentially a matter of risk management and assessing the ability of the borrower to repay or,  in the event of non-payment, of the lender to recover the debt.

The Korean government’s policy of restricting the ability of people to buy or sell property simply feeds the inefficiencies in the market that are – at least in part – at the root of the inflated housing prices in Seoul. If the government would just butt out, stop trying to second guess the market and let the financial instutions themselves decide how much they are willing to lend and to who, it would go some way toward facilitating an equitable distribution of capital.

It also remains to be seen how long it will be before the “evil foreign capital investors” are exposed for making “enormous profits” and the “expense” of the Korean taxpayer.

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