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Will tax cut help property market?

Government officials expect tax alleviation to revitalize real estate transactions

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Published : 2014-01-05 19:48
Updated : 2014-01-05 19:48

An aerial view of a new apartment complex in Pangyo, Gyeonggi Province. (The Korea Herald)

Hope for the revitalization of the nation’s real estate market, which has been in a slump since 2008, is greater than ever as the government lifted a heavy capital gains tax on multiple home owners on Jan. 1.

Market experts, however, are divided on what effect the deregulatory measure will have on transactions.

“The real estate market tends to swing psychological factors and so, I think that the abolition of the strongest tax-related regulation in the property market, following a tax reduction on home purchases, will be helpful to promote home transactions by easing uncertainties in the market,” said Yang Jee-young, a manager from Real Today, a local real estate market information provider.

“With the eased capital gains tax on home transfers, those who have more than two homes will soon return to the sellers’ market.”

She added that the deregulatory measure would increase purchases of properties to rent out.

The tax on capital gains from property sales will vary from 6 percent to 38 percent from this year, depending on the size of the gains, not on the number of homes that a seller owns.

Previously, when owners of more than two houses sell their property, they had to pay a 50 percent tax on any gains they made from the sale. For those who owned more than three homes, a 60 percent tax was applied.

Some experts, however, were skeptical on the effect of the government’s dependency on tax alleviation measures to rescue the real estate market, which is aimed at boosting the stalled domestic business sentiment and consumption.

“I doubt the effect of serial tax incentives on the sentiment of potential home buyers at a time when people do not consider investments in homes as a high return business any more,” said Park Won-gap, the chief of the real estate team at KB Kookmin Bank.

He added that it would take more time than the government expects to see the real estate market pick up.

Some think tanks that worry about the negative impact of deregulation-driven property market stimulus on households’ financial health.

The Korea Institute for International Economic Policy recommended the government put more focus on stabilizing the real estate market rather than encouraging it to grow.

The ratio of Korea’s household debt to gross disposable income was 156 percent, according to the OECD’s latest data, which is higher than the OECD average of 126 percent.

By Seo Jee-yeon (jyseo@heraldcorp.com)

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