[Desk Column] Did the Real Estate Policy Really Reflect?

[Asia Economy Jeong Doohwan, Deputy Director and Head of Construction and Real Estate Department] The president’s reflection that he “received a judgment that was like being struck with a wooden stick, waking him up sharply”?where has the ruling party’s new leader’s will to “accept the harsh public sentiment” gone? The ship of real estate policy is heading for the mountains. In fact, it seems to have already gone there.

Right after the crushing defeat in the April 7 by-elections, the government and ruling party made a big fuss about changing the flawed real estate policies. Ideas to reduce the tax burden caused by the sharp rise in official property prices poured out competitively. There were demands to adjust the tax imposition threshold for single-homeowners from 900 million won to 1.2 billion won, and even proposals to limit the tax imposition to the top 1% of homes.

With these successive shifts in tone, there was a faint hope, but as expected, nothing changed. For nearly two months, there was only noise, and now, with June 1?the date for property tax imposition?just around the corner, everything has returned to square one. The only change was a slight expansion of the property tax reduction targets. On the contrary, some within the ruling party are even proposing to lower the capital gains tax deduction rate for long-term holders, increasing transaction tax burdens. The original intention to reduce the excessive tax burden on single-homeowners has completely disappeared. As a result, due to the soaring official property prices, not only in Gangnam but also among the middle class who previously thought comprehensive real estate tax was not their concern, everyone is now facing a tax bomb overnight.

The market’s reaction is that it never expected anything anyway. This is due to the government and ruling party’s unchanged perception of the market even before specific policies. Prime Minister Kim Boo-kyum’s remark that “the rise in house prices is unearned income” and “should be returned to society” is evidence of this.

Experts find it absurd to call unrealized gains that haven’t even been touched “unearned income.” Who exactly caused the house prices to rise? Most single-homeowners did nothing but passively experienced the rise in house prices. What benefit did they gain from the price increase? On the contrary, with soaring house prices, it has become difficult even to increase the size of their home within the same complex despite years of scrimping and saving their salary. If house prices fall, will the government refund the taxes collected then?

The government has already raised the capital gains tax rate for multi-homeowners up to 75%. Acquisition tax rates have also been increased. Even after raising acquisition tax, holding tax, and capital gains tax, if house prices have not been controlled, doesn’t this prove that the policy of controlling house prices through taxes has failed?

“It must be fair to everyone.” This is a golden rule when discussing taxation. Even before the comprehensive real estate tax, property tax rates are applied progressively by brackets. Even without the comprehensive real estate tax, there is a structure where more expensive homes are taxed relatively higher. However, with the sharp rise in house prices, the government’s logic that only a very small number pay the comprehensive real estate tax has collapsed. Due to the surge in official property prices, the number of homes subject to comprehensive real estate tax this year?homes priced over 900 million won?reaches 514,461 households. Compared to 83,785 households in 2010, this is a 6.1-fold increase over 11 years.

Still, the government argues that homes subject to comprehensive real estate tax account for only about 4% of all homes, which is minimal. But is it truly fair taxation to pay abnormally high tax rates just because one lives in an expensive home?

Following the April 7 by-elections, the government and ruling party’s zigzagging real estate policy path has led the market to give up even the small remaining hopes. With only one year left in the Moon Jae-in administration, and no clear policy control tower in sight, there is growing concern about where the real estate policy will head.