Go back to basicsThe prospects of the 22nd set of real estate measures the Moon Jae-in administration announced on Friday are certainly not bright because of a lack of concrete plans to increase housing supply to meet demand. Flanked by Land Minister Kim Hyun-mee in the briefing last week, Deputy Prime Minister for the Economy Hong Nam-ki, who also serves as finance minister, vowed that he will come up with “additional measures aimed at curbing soaring real estate prices if the market is not stabilized.” But that is the same as a declaration to resort to a quick fix once again to address the administration’s repeated policy mistakes.
This time, the government has further tightened regulations on the real estate market, backpedaling on the universal taxation principle based on “raising a possession tax while lowering a transaction tax.” Targeting multi-homeowners, for instance, the government lifted a possession tax at the same time. Under the plan, even people with one home in the Seoul metropolitan area must pay higher comprehensive real estate tax than before if their areas are designated “speculative areas” by the Land Ministry. Given a sharp increase in posted prices of real estate since the liberal administration launched in 2017, the latest announcement translates into an “all-out tax bomb” on people with multiple homes.
For people with three houses, the government plans to raise a transfer tax to a maximum 72 percent from the current six to 42 percent. At the same time, their comprehensive real estate tax increases to the 1.2 to 6.0 percent range from the current 0.6 to 3.2 percent range. Acquisition tax also triples from the current 1 to 4 percent range to the eight to 12 percent range. That means levying a sort of punitive tax on multi-homeowners for their possession and sale. That’s not all. Even second-home buyers should pay an additional 12 percent acquisition tax.
The government expects such tax hikes to force a number of multi-homeowners to sell their extra houses and help lower skyrocketing home prices. But its past 21 sets of real estate measures backfired as they only repeated the vicious cycle of a temporary drop in housing prices and a dramatic rebound. The same will most likely happen this time too.
Ordinary citizens are well aware of the limit of the government’s real estate policies. According to a Gallup Korea poll, 64 percent of respondents criticized the Moon administration for its failed real estate policies, and 61 percent anticipated housing prices will go up in a year. Most multi-homeowners will hand over their extra houses to their children rather than pay heavier taxes. It turned out that National Assembly speaker Park Byeong-seug and ruling Democratic Party Secretary General Yun Ho-jung already transferred their extra apartments to their children.
The Moon administration’s real estate policy will make people without a home have more trouble renting a house after its three bills to toughen regulations on leases pass in the National Assembly soon. For example, after the Kim Dae-jung administration enforced a mandatory two-year lease for homeowners, it caused rent to soar by a whopping 24 percent, which ended up raising housing prices. Without supply to meet demand, the government cannot stabilize the market. We hope the Moon administration goes back to basics before it is too late.