Flexibility is neededThe appraisal prices of certain types of homes — mostly apartments — have jumped 14.75 percent in Seoul and 5.99 percent on average across the country. The appraisal price, which becomes the basis for taxation, gained over 20 percent in certain neighborhoods in Gangnam (in southern Seoul) and elsewhere in Seoul. As a result, property and comprehensive taxes levied on homes will shoot up. An owner of a home valued 900 million won ($773,000) or more will have to pay millions of extra won this year.
Taxes should go up when home values increase. The theory of heavier taxes to rein in real estate prices has some truth. But a hike in taxes when lives are tough for everyone amidst the unprecedentedly broad impact of the coronavirus outbreak requires deeper thought. The economy faces arguably the worst crisis in its history. President Moon Jae-in has been holding emergency meetings on the economy on a weekly basis. The government has been positively discussing tax deductions and even disaster allowances for the people as a supplementary budget alone is not enough to tackle the challenges.
However, higher taxes on homeowners in such dire circumstances can have a deleterious effect. The appraisal price affects other social taxes such as health insurance premiums. A sharp hike could further dampen consumption.
The raise in appraisal prices and taxes is meant to stabilize a supposedly overheated real estate market. But the market has already sagged under multiple government regulations and an economic downturn. Even when homeowners want to sell their homes because of a growing tax burden, there are few buyers in the market. To make matters worse, a sharp depreciation in home values could cause bigger problems. If the ticking time bomb that is household debt actually explodes, it could lead to an unprecedented financial crisis.
Although taxing according to the real value of real estate is a step in the right direction in the long term, the pace of tax increases should be moderated. If a rise is too fast or big, it can increase rents sharply and dampen the market. Flexibility is needed during a tumultuous period. The government should listen to the voices of homeowners before it finalizes the appraisal values. It also should consider deferring the revisions in the taxation rate. Policymakers must demonstrate inventiveness and pliability during emergencies instead of toughening one regulation after another.
JoongAng Ilbo, March 20, Page 30