There are no quick fixesThe ruling Democratic Party (DP) is seeking a temporary relaxing of real estate holding tax by revising the property appraisal system after holding a party-government meeting on Monday. The move comes after DP presidential candidate Lee Jae-myung proposed to apply this year’s appraisal value in deciding next year’s home ownership tax. The DP and government also agreed to ease a property tax, comprehensive property tax for the rich and national insurance premiums depending on the appraisal value by capping the ownership tax for single home owners and senior citizens. The action came two days after Lee argued for a revision on social media.
The tax freeze positively suggests a fix to the government real estate policy that has led to a surge in housing prices and long-term and monthly rent. But few expect the move will help stabilize the real estate market. The DP actually has not changed the government’s roadmap to raise the home appraisal value, currently fixed at 60 to 70 percent of the market value, to 90 percent by 2025.
No policy can help tame housing prices unless a steep increase in appraisal value is moderated. Property owners cannot endure a further hike in ownership tax, which was fueled by regulations. The appraisal value of homes in Seoul surged 20 percent this year alone. Comprehensive property tax bills have jumped by double-digit numbers over two to three years. Some retirees who had temporarily owned two homes had to pay a tax amounting to 7 to 8 months of their pension income.
The government argues that the comprehensive property tax was to be paid by only the top 2 percent of home owners. But in terms of households, the ratio is 6 percent. The proportion goes even higher when it is narrowed down to the Seoul area, where half of the population is concentrated.
The temporary relief is a makeshift action to appease angry taxpayers and senior citizens ahead of the presidential election in March. It can only fuel public rage as property owners, including 130,000 single-home owners, paid 5.7 trillion won ($4.8 billion) in comprehensive property tax by the deadline a few days ago. Upon losing the Seoul and Busan mayoral by-elections in April, the DP considered an easing of the ownership tax, but did not follow through.
A failed policy requires a formal apology and fundamental change. The government one day could announce it will be taxing according to the appraisal value. Taxation must be predictable. The DP plans to legalize the move during an ad hoc session of the National Assembly in December. The party may merely be buying time to pass the presidential election. The DP must stop politicizing real estate policy and address the fundamental housing problem by moderating the pace of increases in appraisal value.