South Korean President Moon Jae-in praised himself for the government’s recent real estate measures in a meeting with his cabinet members on Monday by saying that a comprehensive package of both housing and residence policies is gradually showing its effects. He meant that the over-heated real estate market is stabilizing and the rise of housing prices is slowing down. However, as confusion and opposition are growing across the country due to the three laws regarding real estate and the three laws concerning lease and rental that have been hurriedly passed by the ruling party, one can’t help but wonder what kind of report the president gets from whom.
It is true that the rise of apartment homes’ sale prices has slowed down. In the first week of August, the sale prices of apartment homes in Seoul and the nearby region rose 0.12 percent, which is the same level as the previous week. Compared to 0.22 percent at the end of June, it has slowed down a bit but prices are still going up. Meanwhile, the lump-sum housing lease and monthly rental markets have become even more unstable. Lump-sum housing lease prices rose 0.17 percent, rising for 58 consecutive weeks in a row. As homes for lump-sum housing lease have become scarce in the market, monthly rentals account for 52 percent of newly built apartment complexes in Seoul.
“Property taxes increased with the new measures, but they are still relatively low compared to other advanced countries,” said President Moon. It is indeed true that South Korea’s effective property tax rate – property tax divided by real estate price – was 0.17 percent last year, which is about half of the average of the Organisation for Economic Co-operation and Development countries. However, the reason why the effective tax rate remains low despite tax increase is the rapid rise of real estate prices during the Moon administration. A tax policy that leads to an over 40 percent increase in a single homeowner’s property tax in just one year due to housing prices and tax rate increases is not normal. While even single homeowners in Seoul and the nearby region are struggling with the rapid increase of taxes, the reality should not be misunderstood solely based on a low average effective tax rate.
As the government has poured out a number of real estate policies at one, some say that all South Koreans are furious with the real estate market as those who have homes worry about taxes while those who don’t worry about rising housing prices. During the last weekend, demonstrations related to the real estate market took place in Nowon-gu and Yeouido in Seoul despite the pouring rain. Residents near the Taeleung Golf Course and Gwacheon, Gyeonggi Province are opposing the government’s plan to develop the region into new housing sites over the concerns about environmental damage and traffic congestion. There are disagreements with the Seoul metropolitan government for public reconstruction projects while policies that are quick to address the problems at hand without any clear direction are causing complaints among rental and lease business operators. It is quite concerning that President Moon will push his policies based on the false positive prediction of their results, rather than a clear understanding of the situation on the ground, and cause even bigger problems.