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| A woman walks past notice boards for home sales and rent posted by a realtor in Seoul, Wednesday. The government unveiled a package of measures to revitalize home trades and stabilize the real estate market on the same day. / Yonhap |
By Yi Whan-woo
The government has decided to cut acquisition taxes starting next year to revitalize demand for homes and stabilize "jeonse" prices, while expanding income deductions for monthly rental fees.
These are part of measures unveiled by the Ministry of Land, Infrastructure, and Transport Wednesday to support those without homes and stabilize the real estate market amid growing fears over soaring rental costs. These measures are subject to approval by the National Assembly.
Under the new measures, the government will lower home acquisition tax rate to 1 percent from 2 percent for first-time home buyers if their home costs 600 million won ($537,000) or less. For homes worth more than 900 million won, the rate will be lowered to 3 percent from 4 percent. The rate for in-between will remain unchanged at 2 percent.
The government will also introduce a new type of mortgage program, under which home buyers can borrow money from People's Housing Fund at an interest rate of 1 to 2 percent on condition that they can share capital gains and losses with the fund. The fund, set up in 1981 to help those without homes, has around 16 trillion won under management.
Under the new system, the fund can lend up to 70 percent of home values or up to 200 million won for people with annual income less than 700 million won at an annual interest rate of 1.5 percent for those agreeing to share capital gains.
It will supply a total of 33,000 rented homes to those in the low- and middle- income brackets. It will also supply 2,000 unsold housing units owned by state-run Korea Land and Housing Corporation under jeonse contract.
For those paying monthly rent, the government will increase income deductions up to 5 million won.
"Though the tax reduction must be approved by lawmakers before going into effect, we, in principle, expect to see the rates lowered starting next year," a ministry official said.
"We expect these measures to stimulate transactions and turn the demand for rental homes to the demand for house purchases," he added.
The package of measures comes amidst growing concerns that the jeonse market will become more volatile amid sluggish demand for homes ahead of the busiest house-moving season in September.
The Park Geun-hye administration's property market stimulus package on April 1 was designed to revive transactions of real estate by easing tax burdens and restricting the supply of new homes but they turned out to be ineffective.
The number of home sales stood at 39,608 in July, plunging from 129,907 in June when the government's exemption on acquisition taxes for first-time home owners expired. The figure was also down from 56,999 in July last year.
On the other hand, the jeonse price has been soaring. The average cost of renting homes under the jeonse contract here has risen 2.1 percent so far this year until July, and the prices are showing signs of rising faster recently as people prefer renting to buying homes for fear of further falls in home prices
The average jeonse price in the capital area reached up to 61.9 percent of the home values in July. ‘Jeonse is a property rental system unique to Korea under which tenants pay upfront instead of monthly rent. Tenants get the money back when a contract expires.
The ministry expects that the rise could intensify in the September-October period that traditionally has been busiest time of the year for moving homes. The average jeonse price increased by 0.83 percent in September and 0.62 percent in October, respectively, in the past five years.
Experts said the government is on the right track in terms of extra cut on the acquisition tax but showed mixed responses about its effectiveness
"The reduction in such tax can reinvigorate the market, especially among the small housing units," said Park Won-gab, head of Kookmin Bank's real estate team.
Kwon Joo-an a director of the research division at Korea Housing Institute echoed a similar view, although he expressed doubts about the effectiveness.
"Those who buy small housing units such as newly-weds can definitely benefit from the measure," he said. "However, imposing tax on the home owners with expensive houses is based on a progressive tax system, which can deter wealthy people from buying homes."
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