Increase home supply to curb speculation
The Moon Jae-in administration announced its 22nd set of anti-speculative housing measures Friday to put the brakes on ever-rising home prices. The move came less than a month after the government's June 17 package failed to produce the desired results.
The new steps are focused on imposing steeper taxes on owners of two or more homes. Policymakers stressed that slapping punitive taxes on multiple home owners would make it far harder to make windfall gains from real estate speculation. They are seeking to make it far costlier than ever for speculators to buy, possess, or sell homes. First, the acquisition tax rate for those having more than one house will be raised steeply to as high as 12 percent from the current 1 percent to 4 percent.
Second, multiple home owners will face a maximum 6 percent real estate holding tax, up from 0.6 percent to 3.2 percent. Third, homeowners will have to pay much higher capital gains tax. The tax rate for those selling a house within a year after purchase will surge from 40 percent to 70 percent starting next January. The rate for those selling a home after holding it for more than a year but less than two will jump to 60 percent.
Moreover, owners of multiple homes in designated speculative areas, mostly in Seoul and the surrounding metropolitan area, will have to pay an additional capital gains tax of 20 percent to 30 percent, up from 10 percent to 20 percent. This punitive tax rate will be enforced from June 2021 to give enough time for owners to sell their homes by then to avoid the heavier taxes.
In a nutshell, the government is sending a strong message that multiple home owners should sell those that they do not live in. It is determined to prevent anyone from buying homes for speculative gains, especially short-term profits. “By raising the acquisition, holding and capital gains tax rates, we will prevent short-term buyers and multiple home owners from making profits from real estate speculation,” said Deputy Prime Minister and Finance Minister Hong Nam-ki.
We hope the new measures will work properly to bring the ever-intensifying house speculation under control, as Hong said. But it is still doubtful if the package will be successful this time. Opposition lawmakers and other critics described the measures as “tax bombshells,” which they believe cannot help stamp out speculation. They worry that punitive taxes will lead only to a vicious cycle of higher rents and higher home prices, predicting that tenants will be the victims of soaring housing costs.
That is why the government has been criticized for having resorted excessively to raising tax rates and reducing mortgage availability to prevent speculative purchases. To win the war on property speculation, the authorities should also supply new homes at affordable prices, which the administration has failed to do. The government has even refused to ease strict regulations on rebuilding decades-old apartments.
In this regard, it is disappointing that the new measures do not include any plan to build more houses in the densely-populated capital and the surrounding area. The government only promised to take steps to increase the housing supply. If the promise proves to be empty, policymakers will not bring speculators to their knees.