[Weekly Review] Complaints Over 종부세 Bomb... Bank of Korea Raises Growth Forecast

[Image source=Yonhap News]

[Asia Economy Reporter Kim Bo-kyung] Homeowners in the Gangnam area of Seoul are facing comprehensive real estate taxes that have doubled compared to last year. The burden is expected to increase further next year due to the hike in comprehensive real estate tax rates. As apartment sale prices nationwide continue to rise, housing price expectations have reached an all-time high since the survey began. The Bank of Korea has revised its growth forecast upward, considering the pace of export recovery.

◆ Comprehensive real estate tax doubled... Burden to increase with next year's tax rate hike = The National Tax Service announced on the 25th that it imposed comprehensive real estate tax amounting to 4.2687 trillion won on 744,000 people this year. The comprehensive real estate tax is levied annually on June 1st on individuals whose total publicly announced housing or land prices exceed the asset-specific deduction amount. The number of taxpayers subject to this tax increased by 149,000 (25.0%) compared to last year, and the tax amount rose by 921.6 billion won (27.5%). The tax rates remained the same as last year. The significant increase in taxpayers and tax amounts is due to the rise in publicly announced prices, the increase in the realization rate of these prices, and the upward adjustment of the fair market value ratio applied to calculate the taxable base (from 85% to 90%). Many taxpayers have seen their comprehensive real estate tax roughly double compared to last year, and the number of single-homeowners subject to the tax has also increased, leading to complaints. According to the government's July 10 measures and subsequent legislation by the National Assembly, the comprehensive real estate tax rate will rise to 0.6?6.0% next year. High-value homeowners and multiple homeowners are expected to face even greater tax burdens.

◆ Bank of Korea raises this year's growth forecast to -1.1%... Interest rate held steady = The Monetary Policy Committee of the Bank of Korea held a plenary session on the 26th and revised this year's economic growth forecast upward from -1.3% to -1.1%. The growth forecast for next year was also raised from 2.8% to 3.0%. Although the domestic economy is expected to be impacted by the resurgence of COVID-19, the recovery in exports and a surprising 1.9% growth in the third quarter contributed to the upward revision. The Monetary Policy Committee kept the base interest rate steady at 0.50% per annum. The committee stated, "As the domestic economic recovery is expected to be gradual and demand-side inflationary pressures remain low, we will maintain an accommodative monetary policy stance."

◆ "House prices will rise" Bank of Korea's housing price outlook hits record high = Consumer expectations that house prices will rise further reached an all-time high this month. According to the Bank of Korea's 'November 2020 Consumer Sentiment Survey' released on the 24th, the Housing Price Outlook Consumer Sentiment Index (CSI) recorded 130, up 8 points from the previous month. This is the highest level since the Bank of Korea began collecting related statistics in January 2013. The Housing Price Outlook CSI quantifies responses to the question about how respondents expect house prices to change one year from now compared to the present. A value above 100 means more respondents expect prices to rise than fall. Hwang Hee-jin, head of the Bank of Korea's Economic Statistics Department, explained, "The nationwide apartment sale price increase continues, and although it has somewhat slowed in Seoul, the rise has not stopped in six major metropolitan cities including Busan and Incheon, as well as in provincial areas. The recent sharp increase in jeonse (long-term lease) prices also had an impact."

Asia Economy DB=Photo by Jinhyung Kang aymsdream@

◆ Exports up 11% from November 1?20... COVID-19 resurgence a variable = Exports from November 1 to 20 this month reached approximately $31.3 billion, an 11% increase compared to the same period last year. Semiconductor and automobile exports contributed to the improved performance. According to the 'Export and Import Status from November 1 to 20' announced by the Korea Customs Service on the 23rd, exports during this period amounted to $31.3 billion, up 11.1% ($3.12 billion) from the same period last year. There were 16 working days during November 1?20 this year, 0.5 days more than last year. Considering working days, the average daily export value was $1.95 billion, a 7.6% ($130 million) increase year-on-year. Exports of semiconductors (21.9%), passenger cars (11.9%), and wireless communication devices (36.2%) increased, while petroleum products (-48.2%) and home appliances (-3.1%) decreased. A Ministry of Trade, Industry and Energy official said, "So far, average daily exports have remained positive, sustaining the recovery trend, but we need to monitor the situation until the end of the month. The resurgence of COVID-19 in regions where exports are recovering, such as Europe and the United States, is a concern."

◆ "Reducing fine dust" 9?16 coal power plants to be shut down this winter = The government has decided to shut down 9 to 16 coal-fired power plants this winter to reduce fine dust. On the 26th, the government held a National Policy Coordination Meeting and finalized the 'Winter Power Supply and Coal Power Reduction Measures.' The government plans to pursue maximum coal power reduction within the scope of maintaining stable power supply. In addition to 2 to 4 aging coal power plants, 1 to 13 plants will be shut down for preventive maintenance, and depending on power supply conditions, power supply from 1 to 9 plants may be additionally suspended. There are 60 coal power plants nationwide, so if 16 are stopped this winter, 27% of total coal power generation will be halted. The government expects a reduction of 2,289 tons compared to December 2018?February last year, and 181 tons compared to December last year?February this year, before the seasonal fine dust management system was implemented. The power supply reserve rate is expected to be maintained above 15%. The peak power demand this winter is forecasted at around 87.6 million kW under the baseline scenario and around 90.4 million kW under the upper scenario.