South Korea Plans to Build 5 Million Homes by 2018

By Seyoon Kim

Sept. 20 (Bloomberg) -- South Korea plans to build 5 million homes over the next 10 years to bolster an economy that is facing a decline in consumer spending and a slowdown in export demand.

The project is estimated to cost about 12 trillion won ($10.6 billion) a year, the Ministry of Land, Transport and Maritime Affairs said on its Web site yesterday. The government will build an average 500,000 homes a year through 2018, including 300,000 annually in metropolitan Seoul.

Increased construction may buoy an industry that accounts for 18 percent of the economy and has been losing jobs since the fourth quarter of 2007. President Lee Myung Bak's six-month-old government, which has experienced a slump in popularity, announced plans this month to cut income taxes, build roads and ports and provide aid to small businesses.

``The government wants to protect the property market from seeing a drastic slump like the U.S.,'' said Ryu Seung Sun, an economist at HMC Investment Securities Co. in Seoul. ``The measures are likely to help stabilize the housing market, but there's a risk this may result in an oversupply of homes.''

The $970 billion economy grew 4.8 percent last quarter, the slowest annual pace in more than a year, as consumers cut back on discretionary spending as living costs soared. Construction investment shrank in the first two quarters of the year, according to a central bank report.

Popularity Decline

Voter support for the government halved to 24 percent from a 52 percent approval rating at the start of the Lee administration in March, according to a Chosun Ilbo newspaper poll on Aug. 25.

The government announced plans last week to spend 50 trillion won building roads, free economic zones and ports over the next five years. The administration on Sept. 1 said it will lower income taxes, provide aid to small business and remove some property taxes to spur economic growth.

``We need to continue supplying homes to meet an estimated annual demand for 500,000 homes and to stabilize the housing market,'' the ministry said in the statement. ``There's also a need to help homeless people to own homes.''

To contact the reporters on this story: Seyoon Kim in Seoul at skim7@bloomberg.net