The transition team of President-elect Yoon Suk-yeol voiced its intention to implement policies that will significantly affect the housing market by reducing taxes on owners of multiple homes and giving a free hand to landlords. Since Yoon pledged to soften regulations on housing reconstruction, lower property taxes and relax mortgage controls, housing prices have begun to rise again. The team is now putting forth half-baked deregulation measures, destabilizing housing prices further.
Last Thursday, the transition committee announced it will suspend the imposition of a heavier capital gains tax on owners of two or more homes for a year from April or May. The intention behind the policy ― giving those homeowners a chance to sell off their surplus homes before June 1 in order to avoid a heavier property holding tax ― is understandable. But it is questionable if the policy will produce the desired results.
Given that selling and buying homes usually takes two to three months, the time is too pressed for homes to be put up for sale and for buyers to complete payment by June 1. On the contrary, now that the president-elect has expressed his intention to ease the property holding tax, people who own two or more homes may likely choose to wait it out. For such a policy to be successful, the new government should make clear its intention to strengthen the holding tax.
Equally worrying is a move to ease lending controls. Yoon has pledged to set the loan-to-value (LTV) ratio, now ranging from 0 percent to 70 percent, at 70 percent indiscriminately, and raise it to 80 percent for first-time home buyers. However, the next government should focus on stabilizing the home rental market before easing or lifting regulations on the property market. The leasing prices of apartments in Seoul, which rose from July 2019 to January, turned downward in February for the first time in 31 months.
Supply, taxes and loans as well as investment psychology all play an important role in the housing market. Therefore, the new government should design its real estate policies more carefully and thoroughly while bearing in mind that a failure to tame speculative sentiment in the early stages will destabilize housing prices down the road.