Rising Housing Prices Lead to Increased Tax Burden Again

Gangnam, Gangdong, and Songpa-gu in Seoul, and Bundang-gu in Seongnam City are primarily designated as housing purchase reporting areas, which reflect real market prices in the levying of acquisition and registration taxes when trading residential properties.

Starting from this coming Monday, apartment purchasers have to report contents of transactions with real purchase prices within 15 days after signing contacts. The acquisition and registration taxes are, as a result, expected to increase three to five times in general.

In addition, the real-estate market is seemingly swirling again as apartments awaiting reconstruction are to be obligatorily rebuilt as small-sized rental units under the initiative of giving back benefits raised from development to original owners.

The Ministry of Construction and Transportation announced yesterday, as a follow-up of last year’s October 19 measures, that four areas with increasing housing prices such as the Gangnam area will be designated as housing purchase reporting areas. This will come into force starting from April 26.

Apartments over 18-pyeong in area will be subjected to this measure. Tenements will be excluded from it due to the relatively low increase in housing prices.

In contrast, apartments under reconstruction will be subjected regardless of area if units obtain permission for their use as organizational buildings, appoint them as special arrangement areas for reconstruction, or finished their unit plans for reconstruction.

Accordingly, 52,000 apartments in Banpo, Jamsil, Cheongdam, Dogok, Amsa, and Myeongil, which have been leading the increase of housing prices in the Gangnam area and mostly have low density, are subjected to reporting contents of transactions regardless of their size.

Such measures are expected to burden acquisition and registration taxes much more. For example, the acquisition and registration taxes of a 45-pyeong Gaepo Wuseong apartment in Daechi-dong, Gangnam-gu, which are now 21.5 million won, will increase 4.2 times to 89.9 million won.

Consequently, now that purchasers within these areas, including non-speculative purchasers, will have to accept more burden than before, complaints among the people are gradually emerging.

People doubt whether such a measure can really stabilize housing prices in the long term.

Chang Seong-su, research fellow of the Housing Industry Institute, said, “Without any measure for expanding the housing supply, if the government pushes ahead with this, it is highly likely to follow in the footsteps of the October 29 measures last year and end up showing short-term effects. On top of that, this is not consistent with government policy lines, which put stress on the reduction of transaction taxes and the increase of possession taxes.

Kwang-Hyun Kim Eun-Woo Lee kkh@donga.com libra@donga.com