Kim Yong-beom said a removal would deliver too big a shock to the market, while also stressing the need for fast-acting measures to address the housing crisis.
The government will not delist single-stock leveraged products tied to Samsung Electronics and SK hynix because it would be too big a shock to the market, the presidential director of national policy said Sunday.
“These are products that are already in place and investors have more than 10 trillion won [$6.72 billion] in them, so delisting them could deliver an enormous shock to the market,” chief presidential secretary for policy Kim Yong-beom said on a KBS current affairs program on Sunday.
The presidential director of national policy stressed that the focus should instead fall on limiting the effect the products have on trading.
“[Single-stock leveraged products] have the characteristic of doubling the gain in a rising market and doubling the fall in a declining one,” Kim said. “Selling pressure concentrates in particular time slots as [the gap between market price and net asset value] is minimized, so the authorities, asset managers and brokerages need to discuss together how to reduce the shock to the market.”
Single-stock leveraged exchange-traded funds and exchange-traded notes rely on liquidity providers to adjust their holdings to ensure that the gap between the market price and net asset value stays narrow.
That can bunch trading in the underlying shares into particular times of the day. The concern that has been raised repeatedly is that when a share price falls sharply, the large volumes that must be sold simultaneously to maintain the leverage ratio can drive the price down further.
Kim said the way that gap is managed also needs to change.
“We should review a range of options, whether the management cycle can be stretched from 30 minutes to around two hours, or if it has to be handled by buying and selling the underlying assets and whether derivatives can be used, so that the shock does not concentrate on the market at particular times of day,” Kim said.
Kim also apologized for the so-called triple surge in the property market, where sale prices, jeonse (lump-sum deposit) leases and monthly rents are climbing at once.
“I am sorry to so many people,” Kim said. “Supply and demand and a number of other conditions are extremely unforgiving right now, and I am treating that with the weight it deserves.”
He was pressed on his remark at a press forum last month that the government should “shut up and build.”
“That was not just talk,” Kim said. “Given the demand pressure we are under now, this is a very challenging situation.”
He said the answer had to come from measures that work quickly.
“Supply cannot be tackled overnight, so we have to mobilize every measure that can produce a short-term effect — supplying nonapartment housing, activating publicly purchased rental units, expanding the private supply of officetels [a building that combines commercial and residential spaces], converting commercial land in the third-phase ‘new town’ projects to residential land — and find solutions with a sense of urgency,” Kim said, calling for more privately owned studio units zoned for both home and office use and the rezoning of the latest round of government-planned satellite developments around Seoul.
He also said that publicly purchased rentals are the fastest of those measures to deliver.
“Activating publicly purchased rentals is the most effective measure in the short term,” Kim said. “We will concentrate on policies that can produce an immediate supply effect, such as converting commercial buildings in Seoul into officetels.”
Kim ruled out redevelopment and reconstruction as a quick fix.
“[Redevelopment and reconstruction] is not a master key,” he said. “We can discuss streamlining procedures and adjusting floor area ratios, but redevelopment and reconstruction take at least three to five years, so they cannot serve as a short-term supply measure.”
He said the Seoul city government had responded to his push on semi-industrial land in Yeongdeungpo and Guro districts in western Seoul.
“I told Seoul Mayor Oh Se-hoon that Seoul has a lot of semi-industrial land in places like Yeongdeungpo and Guro, and he went out to look at the sites himself,” Kim said. “I expect much better results if the central government and the city work together, and I plan to meet with the mayor.”
Kim turned to the government’s property tax overhaul.
“The basic principle is to separate owners of multiple homes from single-home owners and to treat owner-occupied and nonowner-occupied homes differently,” Kim said. “The notion that a single-home owner should be treated differently if the home is extremely expensive, taking into account the ability to pay and the effect on the market, has been more or less settled. What is left is where to draw the line.”
On the argument that a higher holding tax has to be paired with a lower capital gains tax, Kim stopped short of committing.
“We are taking that fully into account,” he said. “But it is hard to approach it as a blanket rule that raising the holding tax must mean cutting the capital gains tax. A range of designs is possible, including steering people to sell at the right time and raising the burden afterward. Fairness in taxation has to be weighed as well.”
BY JEONG JAE-HONG [cho.yongjun1@joongang.co.kr]
