Fast fixes don’t workPresident Moon Jae-in’s administration is expected to come up with its 22nd set of measures to control soaring real estate prices. The measures are focused on raising rates of the comprehensive real estate tax, transfer tax and acquisition tax that will cover the whole process of buying, residing in and selling a house. The government also has decided to remove tax benefits for leasing businesses just three years after introducing them to help ease housing shortages.
The administration based the tax increase on the need to stabilize housing prices. But the effects will be minimal and temporary, as seen in 2017 and 2018. At the time, decreased supplies due to increased transfer taxes led to higher prices. If taxes are raised, only tenants will suffer because landlords will certainly transfer their increased tax burden to them.
Recent hikes in housing prices can be attributed to policy failures of the government. Due to a balloon effect, housing prices soared almost everywhere in the Seoul metropolitan area. As a result, ordinary citizens living in their apartments — not the speculators — will be forced to pay higher comprehensive property taxes. The policy will backfire.
Numbers clearly show the failures of the Moon administration’s real estate policy. Over the past three years, the median price of apartments in Seoul rose by 52 percent — doubling the increase in the nine years under the two previous conservative administrations. As if to mock the government policies, Moon’s own aides, high-level officials and lawmakers, are holding onto their extra apartments despite a presidential order to sell them.
The Moon administration’s problem is that it resorted to quick fixes regulating more areas and raising taxes. Despite levying more taxes on a certain class after branding it a “speculative force,” the government was not able to control mounting home prices. During the process, our property tax system became more complex than ever. Now, the government promises its 22nd set of measures focused on tax hikes only to further compound the problem.
Korea’s property taxes are slightly less than OECD member countries’, but its transaction tax is much higher — nearly four times the OECD average when taking GDP into account. Therefore, lowering the transaction tax while raising the acquisition tax is the right direction to go if the government really wants to stabilize soaring apartment prices. In a New Years press conference, Moon himself admitted it. It is time for his administration to take that path instead of resorting to short-term fixes like introducing punitive taxations on the rich. Imposing penalties on them cannot solve the real estate conundrum.
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