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Construction Tax May Stunt Development

Posted March. 31, 2006 03:01,   


According to new government regulations to be implemented as early as August, if a new apartment generates 300 million won in reconstruction profits, the apartment residents will have to pay about 115 million won out of that to a development fund.

Considering the existing government’s regulations that obligate reconstruction apartment complexes to build rental homes and small houses of less than 25.7 pyeong, reconstruction will become much more difficult due to the new regulations.

Starting April 5, those who purchase an apartment whose market price is higher than 600 million won in 60 housing speculative areas across the country will see a huge reduction in their loan amounts.

These regulations were unveiled at a government and ruling Uri Party consultation session yesterday in a report titled, “Plans to Improve Housing Welfare for Those in the Lower Income Brackets and Rationalize the Housing Market.”

Apartment reconstruction associations are strongly opposing the plan. They will hold an emergency meeting to come up with countermeasures, and are planning to file a constitutional lawsuit.

The government and the ruling party decided to impose a zero to 50 percent tax on development profit for reconstruction apartments. Development profit can be calculated by subtracting development expenses and normal increases in housing prices from the difference in housing prices on the date of authorization by the reconstruction commission and the date of completion of construction.

The government and the ruling party are planning to approve the bill in a special session of the National Assembly in April and implement it starting August.

The Financial Supervisory Commission announced a “plan to strengthen risk management of mortgage loans.” The financial agency intends to significantly reduce loan amounts for those who buy expensive apartments in housing speculation areas by receiving document evidence of income and taking account of their ability to pay back.

In response, Kim Jin-su, chairman of a national reconstruction federation, said, “Taking money from residents for reconstruction development profit is a violation of personal property. It is equivalent to prohibiting the reconstruction business,” adding, “We’ll file a constitutional lawsuit by collecting opinions from members of the association across the country.”

Joong-Hyun Park Kyung-Joon Chung sanjuck@donga.com news91@donga.com