Confused Real Estate Measures... Government Only Piling Up Watchtowers Layer by Layer

View of the city center from Lotte World Tower, Songpa-gu, Seoul. / Photo by Mun Ho-nam munonam@

[Sejong=Asia Economy Reporter Joo Sang-don] The government presented supplementary measures for the amendment bill on the Special Act on Private Rental Housing just three days after its passage in the National Assembly. From the time of its passage, it had been criticized as a forced legislation without sufficient discussion, and ultimately, a revised proposal was issued again.

According to the "Supplementary Measures for Tax Support on Rental Housing Following the Amendment of the Special Act on Private Rental Housing" announced by the Ministry of Economy and Finance on the 7th, capital gains tax will not be imposed at a higher rate when selling rental housing rented out for more than half of the mandatory rental period. Also, rental housing will not be included in the comprehensive real estate tax aggregation until the registration is canceled. The one-household one-home capital gains tax exemption will also apply when the rental business owner sells a house they reside in.

Specifically, capital gains tax will not be increased when selling a house rented for more than half of the mandatory rental period. If this criterion is met, the additional capital gains tax rate (10%) on houses owned by corporations will not be applied. However, if the rental business registration is voluntarily canceled before the end of the rental registration period, the property must be sold within one year to avoid the increased capital gains tax. If more than half of the mandatory rental period has passed, the one-household one-home capital gains tax exemption will be recognized for five years after registration cancellation for houses where the rental business owner resides. For example, if Mr. A owns three houses and registers two of them as short-term private rental housing (4 years) besides the house he lives in, after two years of rental period, he can voluntarily cancel the registration and avoid the increased capital gains tax for one year when selling the rental houses. The house he lives in will not be subject to capital gains tax for five years.

Although only a few days have passed since the bill passed the National Assembly, the government hurriedly created a revised proposal due to heated controversy over retroactive application. As the National Assembly pushed forward real estate legislation without sufficient debate, increasing opposition, the government eventually issued a revised proposal.

The government seems to be shifting the responsibility for housing price instability onto market disruptors. Since announcing the "Plan to Expand Housing Supply in the Seoul Metropolitan Area and Surroundings" on the 4th, new or expanded organizations such as the Real Estate Market Inspection Ministerial Meeting, the Joint Real Estate Rapid Response Team of related ministries, and the Real Estate Transaction Evasion Response Task Force (TF) have been established or reorganized to monitor illegal real estate transactions. The police have decided to conduct a special crackdown on all illegal activities disrupting the real estate market for 100 days until November 14. In particular, 50 special investigation team members from the intelligent crime investigation units of eight regional police agencies overseeing speculative overheating zones and regulated areas will participate in the crackdown. The government is effectively building multiple layers of surveillance towers to root out market disruption activities that may occur near planned new housing supply sites.

Of course, collusion in housing prices, fraudulent subscription, and evasion are illegal. Naturally, they are subject to crackdown and punishment. However, organizations and systems to monitor and punish these already exist. The Ministry of Land, Infrastructure and Transport, the main department responsible for housing policy, operates the "Real Estate Market Illegal Activity Response Team," which includes the prosecution, police, National Tax Service, Financial Services Commission, and Financial Supervisory Service. The Korea Real Estate Board under the Ministry operates a "Permanent Real Transaction Investigation Team" of about 100 people, including headquarters and branch offices. It also monitors activities that disrupt market transaction order, such as up/down contracts and housing price collusion, through the Disruptive Activity Reporting Center. Ultimately, this situation makes it difficult to avoid criticism that the government has mobilized excessive administrative power to demonstrate a strong will to crack down on and punish illegal real estate activities in the market.