Revival of real estate market to help low-income class

The Park Geun-hye administration announced Monday its first real estate measures since its inauguration, ranging from tax benefits to financial support. The government deserves credit in trying to flexibly control supply according to changes in the real estate market while normalize transactions by enabling easier access by households.

The recent decline in housing prices has raised rental prices and worsened the situation for moving companies, interior designers and real estate agents, which many ordinary people pursue. Worried over a further decline in housing prices, people are avoiding buying homes and instead turning to jeonse, or a lump-sum refundable deposit used to rent a home. As a result, jeonse demand has increased and accordingly put more burden on low-income people. Despite this, housing supply increased by 587,000 units last year, the highest since 2002, leading to a further decline in the real estate market. In its real estate measures, the government included control of housing supply for public sale, which is necessary to resolve the supply imbalance.

The new government will also exempt transfer tax for not only unsold apartments but also for mid-size homes owned by households owning one home. This will help ease the transaction tax burden, which triggered the sluggishness of the housing market. Exempting acquisition tax for first-time home buyers including newlyweds will also spur sales instead of more jeonse and allow easier access to the housing market.

The previous Lee Myung-bak administration announced real estate measures that turned out to have little effect. This was because the focus was on curbing speculation, while moves to tackle regulation and deregulation proved too late. The new government said it would ease intervention and regulation, but it neglected to mention any debt-to-income and loan-to-value ratio measures in the wake of surging household debt, which is almost 1,000 trillion won (898 U.S. billion dollars). It is just temporary to provide the exemption of acquisition and transfer taxes. In Korea, the share of the transaction and property holding taxes on real estate is 70 to 30 percent, meaning the transaction tax is higher than that of other countries. The government needs to devise longer-term measures to reduce this tax burden and gradually increase property holding tax.

The latest measures could reduce tax income, but this will not pose a big problem if the housing market recovers. Housing and tax law, however, will have to be revised to enable exemption of acquisition and transfer taxes. Measures for multiple home owners, including the abolition of the heavy transfer tax and an acquisition tax exemption for purchase of existing homes, will also face difficulty in passing the National Assembly. The former administration also tried to abolish both the sale price ceiling and heavy transfer tax for multiple homeowners, but failed as opposition parties blasted the moves as deregulation for the wealthy. Normalizing the real estate market could fail if political interests are emphasized. Only when the market is revived can ordinary people be better off.