Joo Jung-wan
The author is an editorial writer at the JoongAng Ilbo
The government announced that it would impose heavy capital gains taxes on owners of multiple homes and gave them a grace period of several months. Not long after that grace period ended, local elections were held. The ruling party won in a landslide. Once the elections were over, the government began raising real estate taxes in earnest. It pressured owners of multiple homes to sell quickly, saying it would impose heavy holding taxes — property taxes and comprehensive real estate taxes — on them. But the government’s high-intensity regulations produced massive side effects in the market, and housing prices only continued to rise.
This may sound like a preview of the current real estate market and what may lie ahead. In fact, it is a summary of a failed experience that left deep scars on Korean society. More precisely, it is what happened around the June 2018 local elections under the Moon Jae-in administration. Since that was already eight years ago, many people may no longer remember the details clearly.
A notice about capital gains taxes is seen posted on a wall outside a real estate dealership in Songpa District, southern Seoul on Feb. 3. [NEWS1]
Let us look back at the situation more closely. In August 2017, the Moon administration announced heavier capital gains taxes on owners of multiple homes, with a grace period until the end of March 2018. At a media briefing at the time, then-Land Minister Kim Hyun-mee declared, “The government will not tolerate homes being reduced from places to live into tools of speculation.” Once the grace period ended, owners of multiple homes began withholding properties from the market in earnest, and the real estate market grew unstable again.
Perhaps the Moon administration wanted to immediately play the card of raising holding taxes. But local elections were scheduled for June that year. The government was not reckless enough to commit the self-inflicted mistake of raising taxes just ahead of an election.
Once the elections were over, the time for real estate tax hikes arrived. In July that year, the Ministry of Economy and Finance — the predecessor to today’s Ministry of Finance and Economy and the Planning and Budget Office — announced a tax revision bill. It included an increase in the comprehensive real estate tax under the name of “normalizing the real estate tax system.” It was exactly what many real estate experts had predicted before the elections. And that was not the end of it. In September, the government announced a second round of comprehensive real estate tax hikes. The market situation had become so serious that the government had to play the tax hike card twice in just two months. As everyone remembers, the Moon administration ultimately failed to stop housing prices from soaring.
The current real estate market bears a striking resemblance to the situation eight years ago. The word “déjà vu” does not feel out of place at all. The government, of course, insists that “this time is different.” That is not entirely wrong. But it does not mean the current situation is any better. Above all, there is an enormous difference between then and now in housing supply. At least on the supply side, conditions are moving in a far worse direction.
Let us compare the housing statistics regularly released by the Ministry of Land, Infrastructure and Transport. In the first quarter of 2018, the number of housing construction permits in Seoul stood at 13,559 units. Even then, there were concerns because the figure had fallen 37 percent from a year earlier. In the first quarter of this year, the number of permits in Seoul was 5,632 units — just 41 percent of the level eight years ago. Supply across the greater Seoul area, including Gyeonggi and Incheon, has also fallen sharply. In the first quarter of this year, the number of permits in the capital region stood at 27,471 units, less than half of the 60,914 recorded eight years ago.
Seoul does face the limitation of having little land available for new housing. In Gyeonggi and Incheon, by contrast, it is relatively easier to find land for housing if the government is determined to do so. That housing supply has plunged even in Gyeonggi and Incheon should therefore be taken very seriously.
The next step is now tax hikes. At a press briefing on Monday, Deputy Prime Minister and Finance Minister Koo Yun-cheol avoided giving a direct answer, saying only that he was “listening to various opinions.” But his remarks were plainly election-season rhetoric. It defies common sense to lock up housing supply in the market through heavier capital gains taxes and then leave holding taxes untouched.
A woman walks by a real estate agency in Seoul with listings displayed on its window on April 16. [YONHAP]
A preview of higher holding taxes has already arrived: the sharp increase in the official assessed prices of apartment complexes this year. According to the Korea Real Estate Board, whose data the government uses as official statistics, apartment prices in Seoul rose 8.7 percent last year. Yet the increase in this year’s official assessed prices, reflecting last year’s rise in housing prices, was 18.6 percent in Seoul, including villas and row houses. That alone is enough to indicate the policy direction the government wants to take.
“A policy that seeks only to keep raising someone’s taxes in order to appease people angered by rising home prices is nothing more than populism. It is not sustainable.” Who said this? Anyone who assumes it must be the biased argument of a speculator or a multiple-home owner hoping for housing prices to rise would be badly mistaken. It is part of what Kim Soo-hyun, the former presidential chief of staff for policy under the Moon administration and the official once in charge of its real estate policy, wrote in his book “Real Estate and Politics”(translated, 2023). There are many parts of Kim’s argument that are hard to agree with. But I fully agree with at least one view: Holding taxes are not a tool for curbing housing prices.
Would it be asking too much to hope that the current government learns a valuable lesson from the painful failures of the past?
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
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