Tax incentives for real estate are pushed along

A bill exempting some home buyers from capital gains in the future passed an important committee in the National Assembly on Monday, but the construction industry is asking for more easing of regulations.

The Strategy and Finance Committee passed the bill that makes gives capital gains exemption to people who purchase new or unsold apartments worth up to 600 million won ($536,332) or no bigger than 85 square meters (914.9 square feet) if they sell the home within five years.

It applies to people who signed a contract from Monday until the end of this year.

First-time home buyers can also get an exemption on acquisition taxes. In order to receive this benefit, an individual or married couple’s annual income needs to be less than 70 million won and the house must be less than 600 million won. Owners have to register the house under their own names.

Lawmakers will decide today whether the exemption takes effect April 1 or 22.

The bill has yet to get the full approval from the National Assembly.

The construction industry was mainly disappointed because the plan was watered down after lawmakers from the ruling Saenuri Party and the main opposition Democratic United Party negotiated it.

The Korea Housing Association Tuesday said the original plan was better, which gave capital gains exemptions on homes priced under 900 million won.

According to data from the Ministry of Land, Infrastructure and Transport, the number of unsold housing units in the nation as of February was 73,386.

More than 40 percent of them are bigger than 85 square meters, which put them out of reach for buyers who want the tax exemption.

“It’s a pity that the lawmakers couldn’t go with the original proposal,” an executive from a construction company said.

“The tax exemption will bring energy to the frozen housing market, but the impact could be limited. When those bigger units start to sell, it will push other sales,” the executive added.

According to Real Estate 114, a property information provider, prices of some small apartments in Gangnam jumped more than 50 million won after the government plan was announced.

Some builders are cutting the price of apartments to lure customers.

According to Dongbu E&C, its Centreville apartment in Shinbong-dong, Yongin, Gyeonggi has cut the price of 149-square-meter apartments.

The originally price was around 799 million won, but they are now selling around 500 million won, which qualifies them for the capital gains exemption.

Analysts said that home seekers should check whether the seller owns multiple houses.

Under the bill, the tax exemption also applies when buying from a single-house owner.

The Land Ministry from Tuesday started to issue temporary certificates to single-house owners to prove their status.

But industry insiders urged caution on potential buyers because there is no designated system to find out whether a seller owns more than one property.

“There is no other way for buyer but to trust the seller,” an official from Real Estate 114 said. “For now, home buyers need to insert a special clause in their contract that says they can nullify the contract if the seller is not a single-house owner.”

By Joo Kyung-don [kjoo@joongang.co.kr]