Incentives’ effect wanes as housing market slows

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Incentives’ effect wanes as housing market slows

Despite incentives in the government’s new real estate plan last month, data shows the country’s property market seems to be cooling down.

According to Real Estate 114, an industry information provider, the price of apartments to be reconstructed in Seoul last week plunged 0.05 percent compared to the previous week due to low demand. It is the first time in 18 weeks the price of these apartments went down.

For example, a 35-square-meter unit at Gaepo Jungong apartments in Gangnam, southern Seoul, dropped about 10 million won ($8,900) last week. The apartment was listed at about 605 million won after the government’s tax breaks on home sales was announced.

Reconstruction-scheduled apartment sales have been considered a barometer of the nation’s real estate market. Owners of these apartments can usually leave with a big margin as their apartment value goes up through reconstruction.

The government last month announced it will waive capital gains taxes on apartments worth 600 million won or no larger than 85 square meters (914.9 square feet) if they are sold within five years.

The popularity of to-be-redeveloped apartments, particularly in Gangnam, has been going up since most of them are small enough to qualify for the tax exemption.

Experts speculate apartment sales will slow as apartment prices rose too high, too quickly.

Some real estate agents are expecting a “sales cliff” after the government’s acquisition tax reduction ends on June 30. “Who would buy houses when they need to pay more taxes?” a real estate agent in Gangnam District said.

The government in March allowed Koreans to pay 1 percent of the property’s retail price up to 900 million won and 2 percent for houses 900 million won or higher. From July, these percentages will double.

The country already saw impact from the temporary tax cut that ended earlier this year. A total of 105,975 houses were sold in December, but the figure dropped 75 percent to 27,070 houses in January after the tax cut ended.

Business groups like Korea House Builders’ Association already said last week that the government should extend the acquisition tax cut period until end of this year to maintain nation’s housing market active.

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

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