Real estate moves shortsightedPublic policies need to be thorough and well-structured. Before trotting them out, officials must meticulously study potential repercussions and effects on the market in order to minimize any downside and confusion. Half-baked, hastily made policies only baffle the markets and any rework only serves to offset any positive effects of the measures. Unfortunately, the government has done exactly that with its series of real estate measures.
Last week, it announced steps to stabilize the home rental market - mostly tax benefits for monthly rents. Amid protests over the measures, the government hurriedly came up with follow-up actions on Tuesday that offered to ease the tax burden on owners who rent out properties. For two years, they will be exempt from the comprehensive income tax, and starting in 2016 they will pay a fixed rate of 14 percent. The tax deduction ceiling for rental income will be raised from 45 percent to 60 percent. To be fair to monthly renters, owners who rent out their homes on a two-year contract with a lump-sum payment will be assessed proportional taxes based on the deposit amount.
In last week’s measures, the government announced higher taxes on long-term rent contracts so property owners can rent out homes at more affordable monthly rates.
Its direction was right, but the plan faced criticism that the retired population, which relies solely on income from the lump-sum payments under jeonse contracts, would be stuck with a heavy tax burden. As some property owners began to raise rent prices to prepare for higher tax levies, demand for jeonse increased more than for monthly rents. Policies will be ineffective if they try to respond to every market demand. The latest measures will help to stabilize the market for the short term, but cannot help in the long run to make taxation more equitable and the rental market more transparent. The government first must draw up a census report. It must identify renters who do not pay any taxes. It should require all renters to register with the government so it can keep tabs on the market. It can come up with the right prescription only when it has familiarized itself with the patient.
JoongAng Ilbo, March 6, Page 30