[VIEWPOINT]In real estate offices, the talk is political

Real estate agency offices in the Gangnam area, southern Seoul, often turn into a place of political discussion these days. The sellers, buyers and realtors used to talk about condominium prices. That’s what I heard.
Sellers never fail to ask about the capital gains tax when they drop into a realtor’s office. They are surprised when they hear the realtor say the tax can be several hundred million won, or several hundred thousand dollars. They cry that they cannot move to a same-sized condominium in another area if they have to pay such a big tax. And then they never forget to ask, “If the administration changes, won’t the new administration lower the capital gains tax or property tax?”
People living in the “Bubble Seven” areas have no interest in a decrease of the transaction tax or acquisition tax. Instead, they are anxious to know what will happen with the property tax and capital gains tax, which are much higher than the transaction or acquisition taxes. Their attitudes are understandable. The Roh Moo-hyun administration will be gone in less than a year and a half.
Korean society is fed up with its tax- and regulation-centered policies. The opposition Grand National Party took the position that the Roh administration’s real estate policy should be reformed from its roots.
As they suffered disastrous defeats in the last local elections, a substantial number of governing Uri Party lawmakers are also worried, saying, “real estate policy should be revised to suit national sentiment.” Some even suggested to the Blue House, “Let’s have a heart-to-heart discussion, not taking status or rank into consideration.”
The rational expectation hypothesis in economics gives weight to the “consistency problem.” It teaches that a temporary decrease or increase in a tax has a limited effect. In the current situation, where there are widespread expectations of a policy change, the real estate policy can hardly realize its goal.
The Roh administration’s real estate measures have long been criticized by various people. In the local elections, the governing Uri Party met a crushing defeat. But, it seems, voters have turned their back on the party because the Blue House and the Uri Party have failed to cope with the real estate problems more thoroughly and elaborately, not because they strengthened the tax system.
Opinion polls also have shown voters were more disappointed with the government’s failure to control real estate prices than with the tax increases. That is, they punished the government for its inability to prevent housing prices from soaring.
Upon closer examination, President Roh is not solely responsible for those problems. Lazy bureaucrats should be blamed for a considerable part of them. The shift in the real estate policy from centering on the transaction tax to centering on the property tax was contained in the policy blueprint made during the Roh Tae-woo administration in 1990. The same goes with real estate taxation based on actual market prices. Deputy Prime Minister Kwon Oh-kyu said, “these had already been reviewed when I was a mid-ranking administrator.”
They have been laid idle, dust-laden on lazy bureaucrats’ desks for more than a decade because the transaction tax is easier to collect than the property tax, and for fear of possible strong resistance against taxation based on the actual market prices.
I get the impression these days that some people are trying to shake the very roots of the real estate policy simply because they are discontented with the Roh administration. In many respects, the Roh administration has brought misunderstandings on itself, with its loose talk about how “more tax bombs are coming.”
But whatever it says, strengthening the property tax and taxation based on actual market prices is taking the right track. Although past administrations were afraid and reluctant to adopt those changes, they are indispensable and should be introduced. Of course, technical adjustments should be considered, such as a decrease in the capital gains tax on households owning only one house, and an increase in the standard assessment on the comprehensive real estate tax. Even so, the government should not let people have even a vague expectation that the backbone of the real estate policy can be changed.
The anger over the real estate policy seems to have subsided a bit after numerous trials and errors, and twists and turns. At this time, the administration should be more careful not to send a wrong signal to the market. It has been a long time since we saw a summit talk between the chairpersons of the governing and opposition parties. This seems to be the right time for the leaders to meet.
Regardless of the upcoming change in administrations, the real estate market wants a consistent voice. If the Grand National Party just tries to benefit from the governing party’s policy failures, there is no telling when they will meet with disaster. President Roh keeps on saying that he will never retreat in the war against real estate problems even though he has been defeated on several fronts. Who can believe this?
It is not normal to exchange political comments in real estate agencies where condominiums are sold and purchased. We are now living in strange times.

* The writer is an editorial writer of the JoongAng Ilbo.

by Lee Chul-ho