[Editorial] Boosting housing market

The government has again come up with a package of measures aimed at stimulating the dormant housing market. It is the sixth of its kind introduced this year.

The frequent announcements of policy steps illustrate the difficulty of the task facing policymakers ― injecting new life into the moribund housing market without letting the genie of real estate speculation out of the bottle.

The latest package, announced by the Ministry of Land, Transport and Maritime Affairs on Wednesday, contained bolder measures than the five previous ones. In the first place, it seeks to dismantle two key regulations that have been in place for years to curb property speculation.

First, the ministry will ease restrictions on housing transactions in Seoul’s prime residential area ― the three southern districts of Gangnam, Songpa and Seocho. These districts have traditionally been the epicenter of housing speculation booms.

In 2002, the districts were designated as an “overheated speculation zone,” and restrictions were placed on apartment construction and sales. The ministry will reclassify them as “speculation zones” to facilitate reconstruction of the old apartments in the area and trading of the reconstructed homes.

To spur apartment reconstruction in this area, the ministry will also suspend for two years the collection of a levy imposed on the increased value of reconstructed properties.

Ministry officials hope these and other deregulatory measures will speed up stalled reconstruction projects, increasing housing supply in Seoul’s most coveted residential area.

On the demand side, the ministry intends to abolish another long-lasting regulation ― the punitively high tax rates imposed on capital gains of multiple home owners.

Under a tax law enacted in 2005, a person who owns a house is subject to a 6-36 percent tax on the capital gains he earns from the sale of his property. But the tax rate for a person with two houses is set at 50 percent while that for a person with three homes is 60 percent.

In 2009, the government temporarily halted the application of these punitive tax rates on multiple home owners to boost the flagging housing market. Yet the suspension was not a strong enough incentive to induce people to invest in houses. Hence, the government plans to revise the relevant law to abolish the punitive rates permanently.

The ministry hopes this scheme would encourage affluent retired baby boomers to purchase multiple houses and rent them out, thus increasing the supply of rental homes, which are in great demand these days.

To stimulate demand for homes, the government also plans to reduce mortgage rates by 0.5 percentage point for first-time home buyers with an annual income of less than 50 million won.

These measures are expected to increase housing transactions to some degree. Yet they have limits in boosting housing demand, as the three southern Seoul districts would still remain a speculation zone, where property purchasers are subject to such lending regulations as the debt-to-income and loan-to-value ratios.

Furthermore, it is unclear whether the ministry would be able to abolish the punitive capital gains tax for multiple home owners. Critics attack its plan, alleging it would only help multiple home owners dispose of their properties by lessening their tax burden.

Opponents also assert that the measure could make it more difficult for ordinary households to buy homes as multiple home owners are likely to preemptively purchase the small homes that these families can afford to buy.

On these grounds, opposition lawmakers are likely to refuse to cooperate with the ministry in amending the relevant tax law.

The ministry’s package, however, is expected to provide some relief to home builders as it will speed up apartment reconstruction projects in the three southern Seoul districts.

Currently, the domestic construction industry is in the worst shape, with 24 of the top 100 home builders in the debt-workout or corporate rehabilitation processes.

Construction firms will also benefit from the government’s decision to delay the introduction of the lowest price award system for projects valued at 10 billion won or more from 2012 to 2014.

Yet the malaise in the construction industry as well as the housing market is expected to continue, as the overall growth of the national economy is slowing in the midst of the global economic downturn.