Debate builds on real estate plan

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Debate builds on real estate plan

A day after the Park Geun-hye government announced its first package of real estate measures aimed at stimulating the sluggish housing market, industry’s response was mixed. While some analysts shared the view that Monday’s measures that mainly focus on providing financial and taxation support to first-home buyers will boost apartment sales, others were skeptical that the measures will help return housing prices back to normal.

Market watchers believe one of the most effective tax breaks in the housing policy is the capital gains tax exemption for all home sellers. According to the plan, all home owners, including those who own newly built or unsold houses priced at 900 million won ($804,900) or less, will be not have to pay the 38 percent capital gains tax over the next five years if they sell this year. It is the first time in 10 years that the government has decided to remove the tax for new houses.

Real Estate 114, a leading market research agency, estimates 5.57 million properties will benefit from the capital gains tax break, more than half of them in the Seoul Metropolitan area.

“The tax exemption is expected to help induce homeowners, mainly the house-poor, to sell their houses after a long period of hesitation due to falling prices,” said Cho Min-geun, a researcher at the agency.

Construction companies also are likely to roll out aggressive marketing tactics to get rid of unsold houses, especially those piling up in areas of Gyeonggi. There are about 75,000 unsold houses across the nation, according to the land ministry. Market insiders note that construction firms could cut prices of apartments that are tagged over 900 million won to take advantage of the tax break. About 175,000 new apartments across the country are expected to be completed this month.

The government’s plan also offers other benefits, including exemption of acquisition tax, for those buying a house for the first time.

Cho expects the acquisition tax exemption will apply to the sale of about 5.45 million apartments smaller than 85 square meters (915 square feet) and priced at 600 million won or less nationwide this year.

“Targeting these first-time home buyers is one of the most effective methods to normalize the housing market, because there is less risk of speculation,” said Kim Eun-seon, a researcher at the institute.

Expectations that housing prices will quickly rebound, however, remain low. Experts say the government policy will have a positive effect on the market, but it is too early at the moment to expect housing prices to rise to previous levels.

“Various subjects are involved at the heart of the moribund real estate market, such as the construction industry that is directly related to the housing market,” said Kim Gwang-suk, a senior researcher at Hyundai Research Institute. “It is normal to wait for at least two years to see a market recover.”

Some critics of the government policy say the tax breaks can lead to shortfalls in revenues and eased loan regulations will not help address growing household debt. Whether or not the April 1 plan will pass the National Assembly, however, remains to be seen. The parliament session is scheduled to open Monday. Opposition party lawmakers argue that conditions for the capital gains tax exemption should be stricter than what the government has proposed. Some lawmakers say the current proposal is aimed at reducing tax burdens on the wealthy living in affluent Gangnam areas.

Meanwhile, the government’s aggressive proposals seemed to have little positive effect on the stock market. Shares of construction firms declined yesterday, the day after the announcement.

The immediate market response showed the measures somewhat failed to meet investors’ expectations. Prime Minister Chung Hong-won had said on Monday that the measures “will help normalize apartment trading and thus stimulate the housing market.”

Shares of construction companies have dropped sharply throughout last year until picking up at year’s end in response to the real estate policy pledges by President Park Geun-hye.

Construction shares showed a strong upward trend just before the government’s announcement, rising 0.22 percent on Monday and 1.81 percent on Friday.

Yesterday, however, shares of Hyundai Engineering and Construction fell 3.16 percent, while Daelim Industrial was off 3.27 percent. Shares of GS Engineering and Construction were down 3.09 percent.

Shares of financial institutions also declined, unlike what had been expected.

Hana Financial Group dropped 5.55 percent and Shinhan Financial Group went down 1.6 percent.

Market analysts say the impact of the new housing policy in the financial market will be limited, adding that in the short term, real estate transactions could increase, but it remains to be seen whether that will boost demand.



By Song Su-hyun, Lee Eun-joo [angie@joongang.co.kr]

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