Little Help to Stabilizing Housing Prices

The government is under fire for its countermeasures on the unstable real estate market.

Many people criticize that its plans are lacking in policy goals and that the timing is somewhat late. Even there was not unity among related government agencies in mapping out its plans, which were made in a “fussing-about-belatedly” way.

According to government agencies for economy, Sept. 15, they announced real estate countermeasures as many as four times this year alone. Under the countermeasures, the National Tax Service (NTS) is conducting the third probe into transfer income tax on houses and the first and second investigations into financial sources for houses, and now it is prepared to start the first investigation into transfer income tax on land and the source of the money.

The reason why the government fails to stabilize the real estate market in spite of its continuing efforts is that the goals of its policies are not clear.

It did not come up with a new plan without adding “No slowdown on the real estate market,” which is very important to the whole economy. Its attitude shows that the government is confused about what should come first between “stabilizing the real estate market” and “activating the market for pump priming.”

While swinging between the two policy goals, it missed the opportunity to come up with best measures that are short on side effects and long on desirable impacts. Rather, it is churning out ineffective plans with many possible side effects.

An official with the NTS said, “The NTS tried to carry out intensive tax probes last year, but it was faced with the opposition of the Ministry of Construction and Transportation (MOCT). As a result, it lost the timing. When it misses an opportunity, it has trouble curbing the real estate speculation.”

Even when the fourth real estate anti-speculation step was announced Sept.4, the related government agencies failed to raise one voice.

As the Ministry of Finance and Economy and the Ministry of Government Administration and Home Affairs (MOGAHA) did not narrow their differences on the plan of raising property tax, the government just announced the fourth real estate anti-speculation plan and the plan of property tax increase was made public by the MOGAHA on Sept. 12.

In particular, in its Sept. 12 announcement the MOGAHA did not consider the impact on property tax of the adjustment of apartment market prices and therefore resulted in confusion among the public. This is only half of the story. The MOCT said on Sept. 9, “Property tax in northern Seoul is five times that of southern Seoul.” But the MOGAHA retorted on Sept. 12 that people living in southern Seoul pay property tax 1.1times more than their counterparts in northern Seoul on an apartment of the same size.

Government officials continue to show different opinions. Bank of Korea Governor Park Seung Sept. 13 said, “If the government redevelops the northern areas of Seoul and builds many luxury apartments, all the problems will be gone.”

In particular, the government cannot avoid the criticism that it is doing the job in a rough-and-ready method.

Real Estate experts explain that there has been a consensus that the regional imbalance in property tax should be dealt with for fairness, but the government did not take up the issue, causing tax resistance.

People also note that the government did not consider the fact that in the case of increase in transfer income tax, the burden could be passed onto new buyers, and for the raised property tax, it could go to house renters.

Kwang-Am Cheon Jeong-Hun Park iam@donga.com sunshade@donga.com