Real estate market may awake after taxes slashed

Social Affairs

Published: 10 Dec. 2013, 22:37

Real estate market may awake after taxes slashed

A customer consults with a bank employee about a household loan at a bank branch in Seocho, southern Seoul, yesterday. Household loans in October reached a new monthly record of 676.1 trillion won. The National Assembly passed a bill lowering the real estate acquisition tax yesterday. [NEWS1]

The air was heavy with pollution blown in from China. A realtor walked a client to her car parked near Garden Five in Songpa, southeastern Seoul, on Thursday.

“This neighborhood is really the hot spot nowadays, and there are a lot of people interested in investing in real estate, mostly officetels,” said the realtor in her 50s. “Even with bad weather like today people keep knocking on my car,” she said.

No wonder: it is plastered with posters of an officetel, or a dual-purpose building used for both commercial and residential purposes, that will start construction in the near future.

On the weekend, long lines formed at a makeshift model home built in front of Garden Five, where a court and law firms will be relocated and housing is scheduled for development.

A homeowner in his 40s said he has been getting calls from realtors asking if he is interested in selling his apartment in Jamsil for 950 million won ($903,490). That’s an attractive offer - the value dipped as low as 800 million won in the last couple of years.

“Those calls really made me wonder if it’s the right time to sell,” the homeowner said. “I mean, what if the market freezes again and this is as good as it gets?”

Signs that the real-estate market is finally coming to life are evident across the country thanks to lawmakers trying to permanently lower the acquisition tax.

A revised law on local government taxes yesterday passed the National Assembly. The revision lowers the acquisition tax for apartments with values exceeding 900 million won from 4 percent to 3 percent. The tax on apartments valued at less than 600 million won is lowered from 2 percent to 1 percent. Apartments between 600 million won and 900 million won will continue to be taxed at 2 percent.

After the 2008 global financial meltdown, the local real-estate market froze, and the biggest losers were owners of apartments of 85 square meters (101.7 square yards) or bigger. The Lee Myung-bak administration tried various measures to boost the market with little success because almost all were temporary.

In August, the Park Geun-hye administration announced a plan to lower the acquisition tax to help potential buyers, who have been holding back until prices fell. One result was the price of jeonse, or long-term housing deposit rentals, skyrocketed.

Since then the market started to revive, especially as the possibility of the acquisition tax being lowered came closer. To cover the losses local governments may suffer from the reduced acquisition tax, lawmakers also passed a bill that raises consumption taxes. Starting next year, the local consumption tax will be 11 percent, up from the current 5 percent.

Also in the revised bill, apartment buildings that are 15 years or older will be allowed to be remodeled to add three more floors from April.

Optimism was evident as household loans, excluding credit spending, reached new heights in October.

According to the Bank of Korea, household loans added 4 trillion won from the previous month to total 676.1 trillion won. This is a far larger increase than the 1.2 trillion won added in September. Even when compared to a year ago, household debt grew 3.8 percent, which is larger than the 3.6 percent registered the previous month.

“[Debt rose] as housing transactions grew sharply while demand for jeonse triggered by the government’s recent measure to offer loans at low interest rates rose,” said a BOK official.

Mortgages were increased 2.3 trillion won to total 411.4 trillion won. This was exceptional growth considering only 700 billion won was added the previous month.

Both banks and nonbanking financial institutions saw their loans increase. This was a stark contrast to September, when banks saw a mild increase, while nonbanking financial institutions, which charge much higher interest rates, saw sharper growth.

Last month, borrowing from banks added 2.5 trillion won of fresh loans, a contrast to the 200 billion won added in September. Borrowing at banks now totals 475.2 trillion won.

Loans from nonfinancial institutions added 1.5 trillion won from the previous month to 200.9 trillion won. In September it added 1.1 trillion won from the previous month.

The greater Seoul area saw loans increase from 100 billion won in September to 1.5 trillion won in October to total 417.9 trillion won.

Provincial areas saw loans double from 1.2 trillion won of additional loans in September to 2.5 trillion won the following month to 258.2 trillion won.

BY lee ho-jeong [ojlee82@joongang.co.kr]