Seoul unveils new real estate policy

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Seoul unveils new real estate policy


Sep 01, 2005

Higher taxes, more housing supply planned to curb property speculation

The Korean government yesterday released a new real estate policy outlining higher taxes and more housing supply as part of its larger plan to suppress speculation.

In a joint press conference with the Ministry of Construction and Transportation and the Financial Supervisory Service, the Ministry of Finance and Economy said that taxes will rise in 2007 when property begins to be assessed at fair market value and the scope for tax coverage is widened.

The stronger measures are aimed to pull down domestic real estate prices that have risen this year following a short cooling-off of about two years, the officials said.

"Despite the impact that the new policy would have on the local economy, we decided to push ahead as it is a price we must pay while developing into a more advanced nation," said Finance Minister Han Duck-soo.

Under the new set of property measures, multiple home owners and those purchasing property for speculative purposes are expected to be hit the hardest.

Comprehensive property taxes, aimed at levying higher duties on owners of expensive homes and land, will be widened to include property valued at 600 million won ($583,000) or more. The present ceiling is at 900 million won.

With the change, government estimates show that about 2 percent of the public will apply for comprehensive property taxes.

Selling homes will also become more expensive for owners of two homes who must now pay taxes based on market value instead of government-set prices that are about 20 percent lower than the actual price. These multiple home owners will also be imposed with a uniform 50 percent capital gains tax beginning in 2007.

Taxes for acquiring and registering new property will go down by 1 percentage point to 2.5 percent from the current 3.5 percent, but industry watchers say the cut is insufficient to spark sales because the market price system would eventually raise the taxes.

To prevent speculation gains from land used for non-business purposes, taxes for possesing such assets will nearly double in 2007. Sales tax will also rise by 30 percent.

On the supply side, the government plans to utilize 45 million pyeong (36,760 acres) of land to build 1.5 million new homes. New towns will be built in eastern Seoul to help absorb demand in the capital, while the ones already existing will be filled with more apartments.

City reconstruction projects will receive increased government aid in the form of less restriction.

The Finance Ministry plans to lift the height limit to allow high-rises while construction companies can build more middle and large-sized apartments.

These restrictions played a big role in stumping development in metropolitan areas outside of Seoul, according to the government.

Although wider in its scope, this is not the first time that the administration has attempted to control the local real estate market.

Most recent measures date back to October 2003 when the government launched a major crackdown on speculation.

Since then, prices have stabilized but critics say the market has remained inactive for too long.

They are now concerned that the government is running the risk of dampening consumer sentiment with its latest policy.

A report from Dongbu Securities predicted that "it will not be easy to sustain growth while cracking down on real estate."

Daniel Yoo, an equity strategist at Citibank Korea suggests that shifting the key interest may be a better way to control real estate prices.

"If the new measures prove to be unsuccessful, the government may be pushed to entertain the thought of moving around the key interest rate," said Yoo.

 


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