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[Editorial] New Real Estate Policy Could Send Taxes Soaring

[Editorial] New Real Estate Policy Could Send Taxes Soaring

Posted November. 10, 2005 03:34,   


The government’s new real estate policy designed to stabilize apartment prices is fueling the rise in pre-sale apartment prices.

When the comprehensive real estate policy released by the government on August 31 is enacted, developers will be placed under heavier tax burdens, including revived development taxes as well as newly-imposed infrastructure taxes. The striking similarities that the two types of taxes share are causing controversy that the new policy is introducing double taxes, which will be heavy. Infrastructure taxes are also similar to the urban planning tax in its nature.

If the new policy is passed, a developer of a 32-pyeong apartment in Gangnam will be required to pay 16 million won in double taxes. And a five-floor building with the floor space of 1,000 pyeong in Myungdong will cost five billion won for construction and eight billion won in taxes.

This is ridiculous. An excessive amount of taxes will be added to pre-sale prices, driving up apartment prices. All charges which are quasi taxes in their nature should be levied only in exceptional cases. Double taxation should be allowed only under a limited number of unavoidable circumstances.

Developers argue that the infrastructure tax system, if legislated, would double the tax burdens imposed on them. And they say that it will not only push up pre-selling prices, but also strangle the supply of houses, causing a surge in apartment prices in the long-term.

Apartment prices have stabilized in the metropolitan area, since the new policy was announced. But in provincial areas, property markets have been dangerously heating up. In some provincial cities, the pre-sell price per pyeong is approaching 20 million won, as the land prices have surged due to a slew of news, including the construction of a multi-functional administrative city, relocation of some public agencies from Seoul to local provinces, and the designation of candidates for business cities and innovation cities.

The cost-linked sale price system introduced for public housing projects and the newly adopted open cost structure policy have contributed to lowering pre-selling prices to a limited degree.

In contrast, skyrocketing land prices are pushing up pre-sale prices greatly. Concerns are being raised that bubble in the local apartment market will have a negative impact on the overall national economy.

The National Assembly should carefully review the new real estate policy, which is full of absurdities, such as infrastructure taxes and a 1% property tax.