Offer tax incentives for rentersThe government announced that it will scale down housing supplies to 370,000 this year - the smallest amount since it set a guideline on housing supplies in 2003.
The government previously pledged 390,000 new homes every year until 2022. However, the latest announcement is part of a series of government endeavors to revive the housing market - this time via cuts from the supply end. Scaling down in supplies may be the right move because there are more than 60,000 unsold new homes nationwide.
But the government would be naive to believe that a cut in fresh supplies would help reinvigorate the comatose property market. What’s in the pipeline merely serves as a guideline for what to expect, not what is actually supplied. Companies draw up construction plans for the year based on government recommendations. Last year, the government proposed 370,000, but licensed housing supplies totalled 440,000. The government cannot actually interfere with the number of supplies. Control in supply therefore cannot help to stimulate the housing market. The biggest problem in the market is not oversupply but the planned taxes on rental income. After the government announced that it will levy taxes on income from monthly and long-term rents, there has been little or no housing trade. The tax plan has splashed cold water on fledgling recovery in the market. Rent income, like all income, should be levied. But the government suddenly came up with the plan at a time when the market began to show some movement.
To normalize and stimulate trade, there must be demand for housing purchases. Speculation is no longer a worry because few can expect to earn money from housing investments these days. What’s left is the demand to buy homes to live in or rent out. Yet the government stamped out the demand with its new tax plan. If it wants to help demand grow, it should extend the grace period on taxation and instead offer more tax incentives for renters.
JoongAng Ilbo, April 9, Page 30
with the Korea JoongAng Daily
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