[EDITORIALS]Apartments and taxes

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[EDITORIALS]Apartments and taxes

President Roh Moo-hyun, in his online chat with Korean citizens, said he was preparing real estate policies that would recapture “excess” profits generated from apartment reconstruction projects. Accordingly, the housing price stabilization policy to be announced at the end of the month is expected to include some stiff measures to grab those extra profits.
The reason there are such profits from reconstruction projects is that supply lags behind demand for high-quality apartments. Thus, real estate speculators are akin to flies buzzing around the plate of delicious food called profits. We should not stop cooking just because of the fear of flies.
Fundamentally speaking, constructing a building on one’s own land and abiding by city planning and construction laws is a right guaranteed by the private property ownership system. Unless the government is willing to provide compensation for losses stemming from reconstruction, then profits from rebuilding projects should be left alone. The government then can levy taxes on those profits. And also, if the reconstruction projects damage existing urban infrastructure such as roads and water supply systems, the government can also impose additional penalties.
It is illogical to think that the reconstruction project association members imposed the burden of the rebuilding costs on the buyers of the extra units created by reconstruction. They covered the costs by selling part of their share of the land to the new unit buyers. Unless the land was available for free, it is not as though the former owners of the unit under reconstruction are not paying for the process. It is also inaccurate to say that the projects make profits by building more floors and bigger apartments. All reconstructed buildings must abide by regulations on their “floor space ratio” under city planning laws.
It is a mystery as to how the government will recapture the profits from reconstruction. If the former residents of an old apartment building move back into their newly reconstructed units, and their units are more expensive than before the reconstruction, differences in the housing prices are, in essence, unrealized profits. And there is a precedent that makes it unconstitutional to impose taxes on unrealized profits.
It is right to impose capital gains taxes on homeowners who sell their reconstructed units at a high price later. Considering reconstruction a criminal act and threatening to redeem profits from it would only result in higher apartment prices by reducing the supply of housing.

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