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New Real Estate Policy
Sep 01, 2005
Consistency Needed in Taxing Speculators, Supplying New Houses
"Real estate speculation is finished," declared Deputy Prime Minister Han Duck-soo, upon his announcement of the government's new policy package on Wednesday. Still, the response from most people is, "Well, let's just wait and see." The top economic policymaker might exude strong confidence in the comprehensive anti-speculation policy, which aims to balance both demand and supply factors and is supplemented by financial devices. But the issue is whether the government can beat speculators.
The direction of the three-pronged policy is right in that it attempts to curb speculative demand by slapping prohibitive taxes and tightening lending spigots, while increasing supply for end users. The government also did well to reduce acquisition and registration taxes to protect non-speculative consumers in contrast to far heavier property and capital gains taxes on owners of more than two homes. It should keep the promise of not affecting 98 percent of families if for no other reason than the policy's durability.
Creating a "mini new town" in southeastern Seoul appears to reflect the soaring demand for large, luxurious apartments among the mid- to high-income bracket. The supply-side approach is necessary to stabilize housing prices, but requires extra caution not to add fuel to the already raging speculative fervor. The central government and the capital city also ought to cooperate with each other to avoid wasting resources in redundant development projects.
According to a recent government survey, 48 percent of Korean families still don't have their own homes, although the total number of houses exceeds that of households. In this small, densely populated country, the extreme disparity in the ownership of land and houses is not just undesirable, but is also harmful to social stability. So, utmost care should be taken in correctly distinguishing speculators from normal consumers. And the government should keep its pledge of enhancing transparency in real estate transactions.
Currently, major economies in the world, including the U.S. and China, are combating their own real estate bubbles in bids to ward off industry crisis. Economists appear to differ over whether Korea belongs in this group, with some cautioning against "overkill" _ meaning too stringent an anti-speculation policy might dampen the construction industry and the overall economy. On the other hand, some call for even tougher policies, such as revealing apartments' true construction costs and tightly regulating redevelopment.
Much of the difficulties lie in that the real estate issue in Korea stands somewhere between social and economic spheres. Fortunately, the opposition parties also recognize the need for curbing speculation, making it easier for the government to turn the measures into laws, which are unchangeable even after the administration changes, as the officials say. We hope the consistent policy and unwavering implementation will drive out an atmosphere of making easy money at other people's expense.