Yoon Administration Planning to Freeze Property Taxes to Fight High Rents
It will be interesting to see if landlords do drop rents when these property taxes are frozen or just pocket the extra income:
The government is expected to freeze property tax for the entire homeowners including owners of one expensive home with an officially appraised value of over 1.1 billion won ($905,000) subject to the Comprehensive Real Estate Tax, according to government ministries, Sunday. The hefty Comprehensive Real Estate Tax is imposed for retaining expensive homes.
Korea Times
The measure is part of the real estate market policy revisions pledged by President-elect Yoon Suk-yeol, whose win by a razor-thin margin was underpinned in considerable part by public fury over the housing prices doubling under the Moon Jae-in administration due to two dozen botched government policies.
Higher housing prices led to a tax spike for homeowners, almost all of whom passed the unexpected burden to tenants in the form of higher rent, threatening their stable living arrangements.
You can read more at the link, but it will also be interesting to see what losing all this property tax revenue will do to the national budget.
To be fair to the landlords, high taxes were not the only burden they faced under Moon… And being a landlord does not require one to run a charity; but I think we’ll see a mix of reactions.
“…it will also be interesting to see what losing all this property tax revenue will do to the national budget.”
They won’t really be losing revenue. Sure it will be lower then what they could potentially rake in, but still more than they budgeted for. Tax revenues went up due to the spike in property values, not due to a raise in the tax rate. A freeze now will just hold tax revenues at the already inflated value.
Taxes for real estate in Korea are complicated which itself isn’t a good sign.
There’s the above mentioned property tax which is paid to local government, a tax which you pay when you buy or sell real estate, which is also paid to the local government and the biggie of them all, the Comprehensive Real Estate Tax(CRET) which is paid to the national(or to US readers, Federal) government.
I’ve heard people with expensive homes in the Yongsan and Gangnam area pay up to 10,000 USD for the CRET.
The Moon administration did a couple of things that created the mess today and contributed to Yoon and the PPP coming to power.
First, they upped the official real estate price, which is used to calculate the taxes, so that the taxes will increase. (Taxes are calculated by the official prices not market prices)
Then for the entire Seoul area they declared it a real estate speculation region which meant more taxes if one were to unload real estate.
And they made it very difficult to tear down and rebuild older apartment complexes which were itself cash cows for owners and those who were into real estate speculation.
The reason for this was supposedly to cool down the market but it backfired big time.
Because of the high taxes, homeowners were reluctant to sell, so supply went down while demand stayed the same or in some cases increased resulting in higher market prices.
They meant that tenants who were hoping to buy a house couldn’t, which meant they had to accept the new lease terms with increased prices. Combine that with homeowners who couldn’t sell their other house and make a profit and with the higher taxes and desperate tenants meant at the end they chose to increase rents. And the other homeowners copied each other resulting in a chain reaction.
So not only do we have angry homeowners bitching about higher taxes but the average Korean who is also angry because he/she couldn’t buy a house and had to live with higher rent or go to an not so ideal neighborhood for cheaper rent.
And that anger snowballed into election defeats for the DPK.
Of course if Yoon take quick steps to cool down that anger then he can ensure continutiy for the PPP. But if he muddles through with no real breakthrough and people get more angry then that will bounce right back at the PPP.
So who loses?
1. People wanting to buy a home that will never be able to afford one because the price no longer reflects reality.
2. People who worked hard, played by the rules, and did everything right as they dumped their saving and income into a home that is expected to fund retirement rather than be worth less than the remaining loan.
I have no answer here.
I suspect the government doesn’t either.
I bet the best solution is for the government to be less involved rather than more involved. That solution works for almost everything.