The government and ruling party are scrambling to roll out measures to curb real estate prices, faced with mounting criticism that the Moon Jae-in administration’s related polices have failed.
On Tuesday, the ruling Democratic Party of Korea’s Rep. Kang Byung-won proposed an Income Tax Act revision outlining the toughest-yet measures to curb real estate speculation, which could see a capital gains tax rate as high as 90 percent imposed on certain transactions.
The bill comes a day after the ruling party’s leaders again pledged to fight real estate speculation.
On Monday, Democratic Party Floor Leader Rep. Kim Tae-nyeon pledged to strengthen the gross real estate tax, while Rep. Park Kwang-on said that “real gross real estate tax feared by speculators” is needed.
While Kang’s bill does not concern the real estate tax, it would see capital gains tax on real estate transactions increase significantly. The bill calls for the capital gains tax rate on properties sold up to two years after being purchased to be raised by 30 percentage points. At present, a rate of 50 percent is imposed on properties sold within one year, and 40 percent on those sold between one and two years of being purchased. The bill also proposes raising the tax rate to 90 percent on unregistered properties.
The bill would also see the tax rate on properties within areas subjected to real estate transaction-curbing measures such as caps on real estate-backed loans raised further depending on the number of properties the seller owns in the area. The capital gains tax rate on those with two properties in relevant areas would be increased by 20 percentage points, and those with three or more properties would see 30 percentage points added to the tax rate.
Transaction-curbing measures are imposed on areas where the real estate price increase rate is more than twice that of inflation, or competition for new properties is more than five to one.
The government, meanwhile, is reviewing ways to increase the burden of capital gains tax on transactions that are deemed to be speculative, with some concerned ministries reportedly proposing changes similar to the ruling party’s lawmaker’s bill.
The government and ruling party’s desperate efforts to bring the real estate market under control is in part fueled by the impact that real estate policies are having on public opinion.
Moon’s approval rating has dropped rapidly in recent weeks, coming to 50 percent in the first week of July in a Gallup Korea poll, which is the lowest since the third week of March. The proportion of those negatively rating Moon’s performance came to 39 percent, which is also the highest since the third week of March.
Only 1 percent of those approving of Moon picked the administration’s real estate policies as their reason for doing so, while 10 percent of those disapproving of Moon cited the same reason.
With minor measures having been rolled out in between major bundled measures, the count of real estate measures introduced during the Moon Jae-in administration varies widely between the government and market’s perception.
The government maintains that real estate measures were introduced on four occasions, while the market counts 22.
Regardless of the frequency with which related measures have been rolled out, the government appears to have so far failed to dampen the market.
Despite the series of measures, real estate prices -- particularly in Seoul -- have soared since Moon took office in May 2017.
According to data compiled by Real Estate 114, a local real estate portal, the average price of apartments in Seoul per square meter has seen more than a 1.5-fold increase since Moon took office.
The data shows that in May 2017, Seoul apartments’ average price per square meter stood at 5.96 million won ($4,990), and that has since risen to 9.21 million won this month.
By Choi He-suk (firstname.lastname@example.org)