After a crushing defeat in the April 7 by-elections mostly due to popular fury over real estate policy failures that drove up housing prices, the ruling party vowed to ease tax burdens and launched a special committee on real estate issues. But its result was disappointingly small. To reduce property tax a bit only for houses in a certain price range was all it decided to do to lessen the tax burden.
Song Young-gil, Democratic Party of Korea leader, and Kim Jin-pyo, the chair of the committee, showed a strong will to address two taxes that many complain of: Transfer tax and comprehensive real estate tax. But hard-liners advocating the direction of President Moon Jae-in’s policies put the brakes on their push for change.
In their general meeting last Thursday, DP lawmakers agreed to raise the upper price limit of homes subject to property tax cuts from 600 million won ($538,000) to 900 million won. They also decided to reduce the property tax rate for houses from 600 million won to 900 million won by 0.05 percentage point. House prices here are based on state-assessed values, and property tax cuts apply only to those homeowners without second homes.
But the expected effect of property tax reduction for houses valued from 600 million won to 900 million won is not so big (about 180,000 won).
The party failed to reach consensus on an issue that really matters: Whether to reduce comprehensive real estate tax and transfer tax.
The committee proposed changing the criterion for comprehensive real estate tax. Currently, the tax is imposed on houses whose state-assessed values are 900 million won or more. Under a new criterion suggested by the committee, the top 2 percent of houses in terms of state-assessed value will be slapped with the tax. It is odd to determine objects of taxation not by an absolute amount such as income, but by a relative percentage.
Kim said that the committee will hold a hearing on the proposal, but it is likely to be scrapped given a strong opposition from DP hard-liners. A series of misguided policies kept raising housing prices and prompted the government to increase its house assessment for taxation. About 25 percent of Seoul apartments have become subject to comprehensive real estate tax. The tax originally targeted a small group of very expensive houses, but these days it is becoming a common tax.
The party also decided to eliminate all of the tax benefits to those landlords who registered their lease of stand-alone houses or multiplex units with the government.
If the benefits are removed, landlords will face hefty comprehensive real estate tax for owning multiple houses. The party expects registered landlords to put their rented housing units on the market to avoid heavier taxes.
Last July, the government and the ruling party effectively abolished tax benefits to registered landlords who rent out apartments. This time, the party is seeking to axe benefits to landlords who lease non-apartment houses mostly to the working classes.
In 2017, the Moon administration encouraged landlord registration with tax benefits, emphasizing good relations between landlords and tenants. Now the ruling party seeks to undo the measure. This will damage trust in government policies.
If the party wants landlords to sell their rented houses, a lower transfer tax will help. But DP hard-liners oppose this, too.
Discouraging housing rental will shrink the pool of houses to let. Jeonse (house lease on a deposit basis) prices keep rising.
Whenever the government announced new policies to stabilize housing prices, distress on both landlords and tenants rose. Measures missed the mark because the party was swayed by hard-nosed Moon supporters who refuse to change the course. So long as they blindly believe that housing prices will be stabilized only when the government holds the rein tight to regulate the market, any measure from them will hardly work.
