By Kim Tong-hyung
For the sixth time in less than a year, the government announced a fresh package of measures to stimulate the nation’s slumped housing market and calm soaring rent prices.
Despite previous misfires, policymakers claim that new moves, highlighted by the easing of capital gains tax imposed on multiple homeowners on property transfers, will prove as the right step to breathe life back into the toxic real estate sector.
However, the prospect of the housing market reclaiming the force of its mid-2000s peak seems as promising as a snowball’s chance in hell. The country’s bloated consumer debt mountain, which matches an entire year’s gross domestic product (GDP), suggests that families are nearly maxed out in their abilities to splurge on property.
Aside of extracting less taxes from multiple homeowners, the government is also looking to lift anti-speculation measures imposed on posh southern Seoul neighborhoods to encourage transactions there.
More than 20,000 housing units will be made available to college students and low-income earners with cheap rent, according to a lengthy news release co-authored by the Ministry of Land, Transport and Maritime Affairs, Ministry of Strategy and Finance, and the Financial Services Commission (FSC).
However, the rewritten tax rules and much of the tweaked policies are contingent to approval by lawmakers, which is by no means a given considering the political intensity entering an election year. Should they survive the National Assembly, government officials will work to implement the suggested changes in phases next year.
``The new policies are aimed at eliminating some excessive regulations that were introduced when the real estate market was showing rocketing growth. By injecting new life into housing transactions, we could reduce the demand on rents and restore price stability in that market too,’’ said Yoo Sung-yong, an official from the land ministry’s housing policy division.
``The plan is to submit the revised bill to the National Assembly as early as we can next year.’’
Since 2005, the government has been imposing a 50 percent tax on owners of two homes and a 60 percent tax on those owning more than three on capital gains from the sale of their properties. In comparison, single-home owners are subject to a 6 to 35 percent capital gains tax.
The government had suspended the application of the punitive tax rates on multiple homeowners in 2009, when the housing market freefall began showing signs of being inexorable. The suspension was to be effective until the end of 2012 but government officials now prefer to eliminate the scheme entirely and impose on multiple homeowners the basic rates applied to single-home owners.
Authorities also plan to lower the interest rates on state-provided mortgages from the current 4.7 to 4.2 percent for first-time buyers earning less than 50 million won per annum (about $44,350). The redevelopment restrictions that have been imposed on southern Seoul’s Gangnam, Seocho and Songpa districts are to be lifted as well, which authorities hope will help spark transactions.
Critics, who see another policy failure on the way, wonder whether the country will be better off if the government actually lets house prices fall rather than continuing futile attempts to artificially boost demand.
Such a step would benefit first-time buyers, who authorities say deserve the most support, as despite the skid in prices over the past couple of years, the majority of lower-paid workers remain shut out of the market.
And with oversupply starting to factor in Seoul and the metropolitan area, home to more than half of the country’s population and the center of speculative demand in boom years, it’s become questionable whether the housing market will ever recover from the financial crisis. Owning a house has become economically beneficial to a lesser number of people than before.
Property values have been driven mainly by speculative demand in past years, which touched off a nationwide borrowing binge as people spent over their heads in blind faith that the prices will rise forever.
The Lehman Brothers collapse ensured they didn’t and now an alarming number of homeowners find themselves trapped with negative equity.
House prices in Seoul rose only 0.7 percent annually during the first 11 months of the year, while construction sector investment has declined for six consecutive quarters and counting.
Complicating the housing situation has been soaring rents, as first-time buyers continue to postpone their plans to get on the property ladder in face of further housing market uncertainty..