The government announced a set of real estate measures on Monday in a widescale effort to revive the country’s sluggish housing market through deregulation and tax cuts.
“Through these comprehensive measures, we have sent out a signal to the (real estate) market, urging it to normalize,” Land Minister Suh Seoung-hwan said in a news conference. “What matters now is implementing the details as soon as possible.”
Finance Minister Hyun Oh-seok said the long-slumping housing market “could weigh on our overall economy.”
The Ministry of Land, Infrastructure and Transport said that it would exempt tax on property purchases for first-time buyers or newlyweds who purchase apartments smaller than 85 square meters and worth less than 600 million won ($538,000) until the end of this year. The Land Ministry drew up the measures with the Ministry of Strategy and Finance.
Those who buy a new or unsold housing unit for less than 900 million won will get an exemption of property sales taxes for five years after the purchase.
The government will also move to increase its housing mortgage fund to 5 trillion won ($4.5 billion) from the current 2.5 trillion won to support first-time buyers and mid-income families, as well as provide loans with interest rates as low as 3.3 percent compared to the 3.8 percent currently offered to borrowers.
Newlyweds or mid-income couples, whose combined income amounts to 60 million won annually, will be qualified to apply for such loans or support funds, the ministry said.
Income earners who own more than one house would also receive tax breaks as the ministry said that it would abolish the capital gains tax levied at as high as 60 percent on multiple homeowners. Instead, they will only have to pay a basic levy of 6 to 38 percent during transactions depending on the size of their properties.
The government will also aim to balance supply and demand in the real estate market through related law revisions and deregulation on private residential development.
For instance, it seeks to relax rules allowing private developers to further push back the mandatory construction starting period by three years, up from two years, while letting them postpone development during market downturns. The government also plans to allow construction of additional stories to old apartments in Bundang, Ilsan and other towns built in the early 1990s, if they so seek to remodel.
The government, meanwhile, plans to lower the supply of public housing to 20,000 units a year from 70,000, and focus on developing mostly small, 60-square-meter apartments for the mid-income group as a means to make them distinct from residential houses developed by private companies.
The comprehensive plan comes as Korea’s real estate sector has been facing low demand, making homeowners reluctant to put their properties on the market and suffer high tax levies, while potential buyers, especially in the middle class, resort to renting homes.
This market disruption has led to a transaction slowdown, while rising “jeonse,” where tenants pay a hefty deposit refundable at the end of the contract, is further burdening low- and mid-income earners, the Land Ministry explained.
Market stabilization will also resolve the supply-demand imbalance in the jeonse market, the finance minister added. Landlords have also been transitioning from offering the long-term jeonse plans to negotiating monthly rents.
Minister Hyun said that the plan was devised to reinvigorate private investment and the construction sector. “Should the (housing) market downturn continue, it will negatively affect the country’s financial soundness,” he said.
Market analysts stressed that the housing revitalization plan was long overdue as the slowdown has lingered despite attempts by previous administrations to resolve it.
“The prolonged slump and gloomy outlooks led to a general sense of pessimism in the market,” said Lee Sang-young, professor of Real Estate Studies at Myongji University.
“The government should first offer hope to the people and convince them that the market can be normalized once again.”
Konkuk University Cho Joo-hyun urged the new Park administration to step up and take bold action.
“The efforts made by past administrations to improve the real estate market failed every time,” Cho said.
“The new Park Geun-hye government, in order to meet people’s expectations, should differentiate itself from its predecessors.”
The government will bring the set of tax relief and deregulation plans before the National Assembly for approval.
Cho Won-dong, senior presidential aide for economic affairs, said the government hopes to see a 15 percent increase in real estate transactions with this plan by year end.
By Park Hyong-ki and Bae Hyun-jung
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