These areas are hot property markets where real estate prices rise rapidly.Beginning next year, people expect the government’s designation of speculative regions to lose its effect.
What is the difference between speculative regions and overheated speculative regions? And what is a “housing transaction declaration region?”
If you are mystified by these terms that are often in the news and opinion pages of newspapers, you’re not alone. Just like many young readers, adults too have a lot of trouble understanding these terms because they are new concepts that have been created by the government. But by knowing a few basic things it is possible to understand the debate going on about the government’s real estate policy.
A speculative region is better understood by knowing its two categories. One category is housing, which refers to specific residential properties, such as apartment complexes. The other category refers to the land and its location, for example, housing lots in certain neighborhoods of southern Seoul.
The important thing to know about speculative regions is that once the housing unit or land is designated by the government as “speculative,” the owner has to pay a tax when selling or transferring the property to another person. Of course, everyone who sells property has to pay tax, but people who own property in speculative regions have to pay taxes based on the actual sale price rather than the declared value of the property. In all other regions, taxes are based on the declared value of housing or land.
There are some other “conditions” that sometimes change according to the government’s real estate policy. The government’s real estate policy has changed often in recent years, with regulations put in place, then quickly changed as part of wider efforts to curb speculation that the government blames for the rapidly rising price of real estate in certain areas.
An example of this constantly changing policy is housing: Until the end of this year only people who own two or more properties have to pay taxes based on actual transaction prices. Beginning next year, however, everyone who owns real estate (housing or land) will have to pay taxes based on actual transaction prices.
Therefore, beginning next year, people expect that the government’s designation of speculative regions will lose its effect, because speculative regions were created initially to make rich people pay more taxes. This was based on the assumption that rich people would own more than one property. However that view has now changed so that everyone who owns property in speculative regions is assumed to be rich and should pay taxes accordingly.
How are speculative regions designated?
By this time, you are probably wondering who decides which districts are speculative regions? Is your neighborhood a speculative region?
Although sometimes it may seem like it to cynics, the president didn’t just wake up one day and jab at a map to designate a speculative region. Instead, regions where the monthly increase rate for housing prices is 30 percent higher than the national consumer price increase rate were first listed for consideration for designation as speculative regions. After being reviewed on other criteria, the Finance Minister passed the list of candidate regions to a special real estate price stabilization review committee, which then decided on what districts it would designate as speculative.
Among the regions designated as speculative, those in which housing price rates increased more than 1.5 percent monthly or more than 3 percent over a three-month period were designated “housing transaction declaration regions.” In those regions, if the owner sells the housing unit, he or she must report the details of the contract, along with the actual price of the transaction, to the government. However, now that the government has started a new system where everyone has to file the actual price of any property sale, the significance of designating such regions has pretty much diminished and the government said it will present other plans.
Overheated speculative regions are areas where there is a high possibility of speculation. The regions designated as such are quite extensive ― stretching all over Seoul, most metropolitan cities and Gyeonggi province.
In these overheated speculative regions, one must be very careful about selling or buying rights to future housing. The government puts out a schedule for the sale of new housing and according to one’s status, which depends on a number of factors, one must follow the schedule and buy a ticket for that housing during the designated period.
In Korea, one does not buy a house after it is built, but instead, buys a ticket for a house that will be built. The ticket costs only a fraction of the actual price of the house, which is paid in installments until the structure is actually built. People who have owned no property for the past five years are given priority in buying new housing.
What are the actual transaction prices and taxes?
Above, we’ve read how taxes must be paid based on actual transaction prices. Honest readers are probably wondering, “Does that mean that there are fake transaction prices?”
Well, no, but some adults have a tendency to be not quite honest. In order to pay less tax, many people do not report the actual selling price of property when they file their reports, but the previous year’s price, for instance.
However, now that everyone has to file the actual transaction price within 30 days of the sale, local government officials check to see that people have reported the correct information. If they think someone has filed an amount that is too low, they will conduct market research. In extreme cases, the National Tax Service will get involved and violators of the law will be fined.
The government points out that saving some money in tax by writing false contracts doesn’t save one that much, because the person who buys the property is “falsely” buying the property at a lower price, so when the property is sold again, the owner will have to pay more in tax because the price of the property will appear to have increased so much.
by Kim Jun-hyun, Wohn Dong-hee