End-users Suffer Most in Real Estate Market

Jang, a 36-year-old city worker, had decided to buy a small apartment worth 350 million won in eastern Seoul early this year. But, he delayed the plan since he had high expectations that he would be able to save at least several million won when the new government cuts the acquisition and registration taxes as announced. After months-long wait, Jang has finally begun doubting whether the government would ever cut the taxes.

Choi, a 45-year-old self-employed, bought a unit of high-rise mixed-use residential building in Yeouido for 1 billion won. He is considering whether to delay the balance payment, with only a month left until he moves in. Choi said, “Apartment buyers are obliged to pay the acquisition and registration taxes upon paying the balance. I will wait for the government to cut relevant taxes since I’ve been told that it would help me save about 10 million won in tax. I’m willing to pay thousands of hundreds of won in arrears.”

End-users in the real estate market have been confused since the government has delayed cutting the acquisition and registration taxes for four months since the announcement early this year.

○ Will the government cut taxes?

In January, the presidential transition committee announced that the new government would lower the acquisition and registration taxes from the current 2 percent to 1 percent, through talks with relevant ministries. It even predicted that the related bill would be successfully dealt with by the 17th National Assembly.

Since the Grand National Party and the then United New Democratic Party also agreed to the proposal, the public had high expectations that the relevant act would be revised in the extraordinary session of the National Assembly in February to be effective beginning March.

If the government halves the acquisition and registration taxes as scheduled, the total amount of relevant taxes including value-added taxes (education tax and special tax for rural development are included) imposed on a house with a transaction price of 300 million won or under and an area with 85 square meters or less will be lowered to 3.3 million won from the current 6.6 million won.

With the government delaying its implementation of the new measure, some Koreans have decided to buy houses later, and buyers of newly built apartments have delayed payment of the balance.

Nevertheless, the news of the government’s tax cut has yet to emerge. Although relevant ministries such as the Ministry of Strategy and Finance and the Ministry of Public Administration and Security discussed how and when to implement the tax cut measures, they have failed to reach an agreement. They have only repeated, “We cannot clearly say when to implement.”

Some would-be home owners who have long waited for the government’s tax cut announcement now feel confused and complain, “Will the government really cut taxes?”

○ The date is undecided

The acquisition and registration taxes are local taxes. The government has yet to fulfill its promise since it has not found measures to make up for the tax loss of local governments.

The Administration Ministry argues that 1 percentage point cut in the acquisition and registration taxes would result in a tax loss amounting to 1.51 trillion won and the central government should allow local governments to create new tax items such as local consumption tax and local gains tax so as to help them make up for the loss. However, the Finance Ministry has opposed the proposal.

The two ministries finally stopped discussing measures for the tax cuts. That means the government has no clear answer to a question when it would really implement the tax cut measures. It could be next year, or later.

Some government officials even say the government has considered limiting beneficiaries of the tax cut measure to those who have only one home.

Park Won-gap, head of online real estate information provider Speedbank, said, “The government has not announced when to lower taxes and who will be beneficiaries for four months since it first mentioned the plan. People who have strongly believed the government promise and postponed their purchase of homes have suffered a lot. In order to ease concerns in the market, the government should make a quick decision whether and when to cut taxes.”

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