Seoul: The government is finalizing its tax reform package, set for release in early August, which proposes significant changes to the comprehensive real estate tax. The reform aims to shift the taxation basis from the number of homes owned to the total value of properties, imposing heavier taxes on owners of ultraexpensive properties.
According to Yonhap News Agency, the government believes these changes will reduce the demand for premium homes and improve tax fairness. However, critics argue that focusing on suppressing demand through increased taxation could lead to market distortions rather than stabilizing housing prices. Previous administrations, including that of former President Moon Jae-in, have faced similar unintended consequences. Tighter taxes and mortgage regulations have led to rising home prices spreading from Seoul's Han River corridor to northern Seoul and the neighboring Gyeonggi area.
The government is also considering reducing the long-term capital gains tax deduction while introducing a three-tier comprehensive real estate tax. Critics warn that increasing both holding and transaction taxes could discourage homeowners from selling, thus reducing housing supply and weakening market activity.
An immediate concern is the growing "loan cliff." At Maegyo Station Prugio Palucid in Suwon, Gyeonggi, a 50 billion won ($34.3 million) allocation for final mortgage loans was exhausted within three minutes last Friday. Financial regulators acted only after President Lee Jae Myung directed officials to address complaints raised at a recent national housing policy forum. Despite this, banks are hesitant to expand lending, fearing penalties for exceeding government quotas.
The current situation poses challenges for prospective homeowners unable to secure necessary financing, even as President Lee acknowledges the need for system improvements. Public frustration is growing, with a recent Gallup Korea survey showing the president's approval rating dropping to 51 percent, its lowest in a month, largely due to dissatisfaction with housing policy.
To restore stability in the housing market, a multifaceted approach is essential. While holding taxes may increase, easing transaction taxes could encourage market activity and maintain a balanced tax system. Practical financial measures, such as transitional arrangements for final mortgage loans, are crucial for genuine homebuyers. Additionally, accelerating housing supply through redevelopment and reconstruction projects is imperative.
For Korea to achieve lasting stability in its real estate market, tax policy, financial regulation, and housing supply must be harmonized effectively.