Acquisition tax cut advances

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Acquisition tax cut advances

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Saenuri Party lawmakers yesterday finally agreed to the government’s proposal to reduce the property acquisition tax permanently.

The tax cut would be applied retroactively to purchases since Aug. 28.

However, there are concerns that the deduction could leave a huge hole in tax revenue. As of September, tax collections were 4.6 trillion won ($4.32 billion) short of the same period last year.

The acquisition tax is collected by local governments, while the comprehensive real estate tax is collected by the central government.

Yesterday, members of the ruling Saenuri Party’s Security and Public Administration Committee agreed to implement the government’s plan for those who bought houses since Aug. 28 in a discussion with Security Minister Yoo Jeong-bok.

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The Ministry of Security and Public Administration and the Ministry of Strategy and Finance on Aug. 28 laid out the plan to apply a 1 percent acquisition tax for buyers of houses priced 600 million won or less, 2 percent for houses up to 900 million won and 3 percent for houses more than 900 million won.

The proposal is a major part of the government’s second policy package to boost the real estate market.

The first package of eased regulations and tax cuts was announced April 1, but most of those measures are still in the National Assembly.

Land Minister Suh Seung-hwan has blamed legislative delays for the continuing market doldrums.

The falling value of houses due to slow sales increased the financial burden of homebuyers who took out large loans when the market was at its peak in the mid-2000s.

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The opposition Democratic Party remained steadfast, announcing yesterday it won’t accept the tax cut unless the government devises a solution that would help make up for the shortfall for local governments.

Local governments depend on the acquisition tax for 26 percent of their tax revenue, according to the Security Ministry.

The tax cut, if applied from Aug. 28, is expected to cost the government about 780 billion won this year.

Investors and potential homebuyers have been postponing transactions since August due to expectations that the tax cut would be enacted.

Home sales spiked to nearly 130,000 in June, but fell to 39,000 the following month. In September, the figure picked up to 56,000.

Annual sales have plummeted since 2011 from about 980,000 to 583,000 so far this year.

Analysts expressed relief at the news.

“As the numbers show, there are many investors who decided to wait until the government plan is adopted by lawmakers,” said a research fellow at Real Estate 114, the biggest property market research agency. “The measure also can help convert rising jeonse [two-year contract] demand into sales demand, having a significant effect on both rental and sales markets.”

However, some remain skeptical about the effect of a tax cut.

“Even with the tax cut, it seems hard to revitalize the sales market because the outlook for housing prices isn’t bright,” said a realtor. “I don’t recommend that my customers buy a house.”


BY SONG SU-HYUN [ssh@joongang.co.kr]
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