&#91NOTEBOOK&#93Speculation a foe not easily licked

“If we invite the minister of commerce, industry and energy to give a lecture, the lecture hall will be half filled by businessmen. If we invite the minister of finance and economy, the hall will be almost filled. If we invite the commissioner of the National Tax Service, the hall will be completely filled and many will be standing in the back,” said a government official. He suggested that businessmen fear the Ministry of Finance and Economy more than the Ministry of Commerce, Industry and Energy, which is in charge of industrial policies. But what they fear the most, he said, is the National Tax Service.
This powerful service has declared a “war against speculation.” It has placed 3,000 of its 6,000 officials into real estate speculation prevention work for an indefinite period.
Speculation is still going on in the market, however. I met with a service official a couple of days ago. “You must be busy these days,” I said. He replied with a sigh, “It is not like before. Until a few years ago, real estate speculation was dwindling as soon as we showed the public our intention to fight speculation. Now, the fight doesn’t work even when we are engaged in actual prevention work.”
“Imposing taxes will not stop speculation,” said a realtor. He said it is almost impossible to impose taxes on speculators who escape the nets of the law efficiently. Even though the speculators pay taxes, he said, profits from speculation well cover the taxes.
Indeed, if the government introduces a new system to control speculation, speculators in the market somehow find a way to make the system powerless.
If real estate speculation cannot be stopped by imposing taxes or by a new system, how can we control the speculation?
The reason that funds are concentrated in the real estate market is because transactions of real estate are profitable. The annual interest rate in a bank’s money market is currently about 4 percent. The real interest rate is de facto zero if we consider annual inflation and the taxes depositors have to pay for their interest earnings. If an employee receives 100 million won ($83,000) upon his retirement, and deposits that money in a bank, he will receive about 300,000 won per month. How can one live on such a small amount of money in present-day Korea?
If such a person attempts to make money by selling his right to live in a new apartment, which he received through a government lottery, to another person with premiums, can we call that “speculation?”
The government measures to control speculation will not work as long as there is an incentive in the market to make money by buying and selling real estate, or the right to live in apartment complex.
On May 13 the government further lowered the interest rate, already the lowest ever, saying that the lowered rate will encourage businesses to invest. But the economy is still in a downturn. The reason that businesses do not invest is because they fear uncertain government policies and labor relations, not because the interest rate is high.
The government, furthermore, is trying to secure additional budget funds for reviving the economy, which means that it will supply more money to the financial market. Still, about 380 trillion won of immobile funds are already available in the market. The government argues that it will use the additional budget funds for fighting unemployment.
But the best policy against unemployment is to make businesses active and let them increase employment.
When businesses are in good shape, the stock market will become active, as well. Money then will move to the stock market.
Other measures to fight real estate speculation are necessary, too. The strong real estate speculation currently taking place is not just incurred from the ineffectiveness of the polices by the National Tax Service and the Ministry of Construction and Transportation. It has resulted from negligence by all government offices.

* The writer is business news editor of the JoongAng Ilbo.

by Min Byong-kwan