[Opinion] Property Tax

Middle-income people holding property tax notices in their hands look troubled. Suffering under falling income and surging prices, they now also face hefty property tax. Property tax increased 50 percent in some of the so-called “bubble seven” areas, despite falling housing price. The Roh Moo-hyun government introduced measures to put hefty property tax on expensive houses. At the same time, however, it prevented property tax from surging more than 50 percent per year. The upper limit benefited residents in bubble seven areas in 2007 when housing prices soared. However, some areas face a 50 percent increase in property tax this year, despite falling housing prices.

Until 2007, only 50 percent of the publicly posted apartment price had been the benchmark of property tax. However, it will increase by 5 percent every year to reach 100 percent in 2017. Property tax is levied on owners of housing in July and on owners of buildings in September. Also, comprehensive property tax is imposed in December. When levying comprehensive property tax, the government had considered only 80 percent of the posted price. However, it will increase this to 90 percent this year, and 100 percent in 2009. Even when housing price falls, comprehensive property tax can increase up to 50 percent.

Facing skyrocketing housing prices in the Seoul metropolitan area, the Roh Moo-hyun government released real estate policies around 30 times. After a series of inefficient measures that collided with market principles and failed to stabilize the real estate market, the former government released the most poisonous measure, saying, “We’ll drop a tax bomb.” It is important to control speculation and stabilize housing price. At the same time, however, a household should be given the right to own one house without heavy tax burden. The bomb makers said, “If you want to avoid hefty tax, just move to another place.” However, residents in inflated areas cannot sell their houses gladly due to transfer income tax. In short, the former government dropped a bomb while blocking both the entrance and exit.

In the run-up to the presidential election, all the presidential candidates promised to cut the ownership tax rate for households with only one house and lower transfer tax for households that have owned their houses over the long term. After taking power, the ruling Grand National Party hesitated to cut transfer and ownership taxes, due, in part, to criticism that the Cabinet consists of the rich living in Seoul’s luxurious areas. Home owners in some of the bubble seven areas eventually received the property tax notice informing them of a 50 percent increase in tax.

Heavy regulations on the real estate market and hefty tax on housing have resulted in rapid growth in the number of unsold new apartments. Some experts even worry that a series of builders will collapse unless consumers are encouraged to buy newly built apartments. Unreasonable taxation policies distort and contract economic activities in the private sector, resulting in inefficient allocation of resources and economic loss. Unless the government makes timely changes in its taxation, its tax bomb may invite a big explosion.

Chief Editorial Writer Hwang Ho-taek (hthwang@donga.com)