Realty-Transfer Tax Rates Rose to 51 Percent

The major feature of the government’s real estate stabilizing program is the “advanced notice of the policy”.

In that regime, the administration announces all the measures possible and gives effect to the first-step policies, which is immediately feasible, and then to the next-step if the real estate prices aren’t stabilized.

Due to this feature, the contents of the program are so overwhelming that it is expected to be “the most definitive edition” of those programs ever announced.

The first-step is likely to be by tax and financial measures: The administration is considering applying the elastic tax rates (maximum 15 percent) to those who have two houses on top of the existing realty-transfer tax rates (9-36 percent), raising the ceiling to 51 percent. Furthermore, the program will apply 70-80 percent of realty-transfer tax rates to those who have more than two houses, making it almost impossible to earn capital gains by selling the real estate.

It is also being positively considered to raise the standard value of the real estate computed for maintaining tax imposition from 36 percent of publicly declared value currently to 50 percent by 2006.

The financial measure may include lowering the limit of the mortgage loans in the areas where the speculative demand is hyper-active such as Gangnam in Seoul, from 50 percent currently to 40 percent. This is to block the cash flow for speculative demand by making it difficult to lend money on the mortgage from the financial institutions including banks.

The second-step will focus on “the concept of the land as a common wealth”: They say that “the licensing scheme in trading houses” and “the recollection scheme of the capital gains earned by the redevelopments and reconstructions” will be categorized into the second-step measures, which will be launched in longer-term periods, considering the market conditions. This is because the schemes will have wieldy influences on the market and general business cycle.

Furthermore, the fact that there are widespread worries about the side effects of the “concept of the land as a common wealth” in the ministries, including the Ministry of Finance and Economics, while the Blue House is positive on this matter, making the tuning of the policy difficult, is assuring this analysis.

The education-related measures seem not to be included in this program. Although the Ministry of Finance and Economics and some others tried to promote the measure of building private independent high schools or special-purpose high schools in the new resident blocks of the Gangbuk area to disperse the housing demands concentrated on the Gangnam area in Seoul, it became uncertain due to the opposition of the Ministry of Education and Human Resources, the ministry in charge.

Wait-and-see attitude of the market, waiting for the details: The lowest asking price of Eunma apartment houses in Daichi-dong, Gangnam-gu in Seoul has fallen by 30-40 million won in one week. Park Ho-kayo, the president of Enema Town Public, a real estate brokerage nearby the apartment, said, “The investors who have many houses put several houses urgently for sale, but they were not sold due to the lack of buyers.”

The prices of Gaepo apartment and Banpo apartment houses built by the Korea Housing Corporation (KHC), which plummeted after the announcement of “the concept of the land as a common wealth,” are now falling gradually, but trading has stopped.

Jamsil apartment houses built by KHC are in a lull after about 10 urgent offerings were traded at the asking price reduced by about 100 million won 10 days ago. Cho Gi-ok, the president of Samsung Public nearby the apartment, said “The low-price offerings managed to be sold at times, but the market in general is showing the wait-and-see attitude after the price of the 3rd block of the apartment built by KHC was set higher than expected, ensuing that of the 4th block.”

Jin-Hup Song Cheol-Yong Lee jinhup@donga.com lcy@donga.com