Don’t just talk the talk
The author is business editor of the JoongAng Ilbo.
Kim Sang-jo, policy chief under President Moon Jae-in, rules out the idea of mandating state approval of transactions in hot real estate zones. “There are many other effective and flexible ways to rein in speculation,” he said in an interview with the JoongAng Ilbo early this year. He was responding to the controversial idea first raised by Kang Ki-jung, a senior presidential secretary for state affairs.
During the interview he stressed meticulosity an economist’s reasonability in devising real estate policy. His comments suggested authorities were fully aware of market opinions and won’t pursue policies that go against them. But that turned out to be mere rhetoric. The real estate market is in disarray. Apartment prices in and around Seoul have soared, becoming more unreachable to those with homes and demoralizing those owning “humble” homes outside the capital.
Even a single homeowner can receive a bigger property tax bill due to a surge in the state evaluation of prices and taxation ratios. Some high-end apartments would be slapped with extra ownership levies. Due to the three laws on tenants’ rights, rent prices jumped, hurting people looking for places to live. The entire population is experiencing a “real estate” blues on top of the virus depression.
Authorities entirely ignored the basic taxation principle of balance by lowering levies on trade if property ownership tax goes up. They argue the need for toughening trade or capital gain tax during overheating, but they have made the market deadlocked with simultaneous bombardment of taxes on purchases, sale and ownership.
A retired official who served as the assistant minister for taxation at the ministry of finance and economy observed that the Moon government has pulled the gun on itself. “A policy must not be drawn out of pertinacity. Tax should be levied quietly and discreetly. The move should be made in drizzles not a downpour. The property tax should have been raised incrementally over the span of 10 to 20 years in accordance with income growth.”
The government steadfastly approaches real estate issues as if to enhance social justice on residences by clamping out speculation and easy wealth building and strengthening tenants’ rights. In due time, the government may reach its goal. The buying spree could come to stop and housing prices stabilize due to an ebb in trade. The scarcity of jeonse (long-term rent arrangements) would be eased and conversion to monthly contracts less forceful.
Still, that cannot pardon the government for its failures from reckless policy execution. Housing prices have already gone up too high under the Moon administration. President Moon in his New Year’s address vowed to normalize housing prices that jumped. But a sudden slide in housing prices also cannot be desirable as it can wreck domestic demand and the financial system to surge in delinquent assets.
Despite Kim’s avowal, government permits on real estate trade are a partial practice. Although the government has not made a new law, it employs existing regulations to check whether the housing purchase is for actual living. The hot districts of Samsung, Daechi and Cheongdam in Gangnam District and Jamsil in Songpa District fall under scrutiny and permission for land trade.
Kim stressed in his interview that the Moon government places stabilization of real estate market as its top priority throughout the five-year term.
He spoke of the trauma of the liberal government under President Roh Moo-hyun. Despite many achievements of Roh, his performance scored poorly due to a flop in real estate measure. The inequalities in wealth due to excessive gains in housing value in some areas go against the Moon government’s slogan on fair society and economy.
Despite all its concentration, the government has erred most on the real estate front. It is more or less an extension of the Roh government which wasted most of its five years wrangling over property ownership tax. It promised to devise the best mix of policies by reflecting all factors that influence the real estate market so as not to repeat the mistakes of the Roh government, but the results have been the opposite.
No matter how harsh and delicate regulations and taxes may be, no policy can curb demand if the market bets the prices to rise further. The market has already learned that the harder authorities hit the market, the higher the prices go up. Many have become disillusioned by government talk of a fair economy as they watch ever-soaring housing prices. The headline in another interview of Kim was his quote that “If real estate measures fail, nothing else matters.”