[Editorial] Measures Need to Save Real Estate Market

With builders going bankrupt one after the other, the domestic construction industry is in tatters. The breakdown of the construction market can lead to catastrophe in the non-banking financial sector and undermine the economy. With the slowdown of business activities, the housing supply between May and July barely exceeded 40,000 units, less than a half of 90,000 units in the same period last year. The supply shortage will soon lead to rising housing costs.

Construction companies are responsible for an estimated 200,000 unsold units nationwide. Housing sale systems and taxes, however, are also to blame for this. Both the government and the ruling party are aware that the problems lies in a tax system aimed at curbing speculation. Party policy-maker Lim Tae-hee said, “We need to normalize the property market, which has struggled since the comprehensive real estate policy was announced Aug. 31 last year.” Strategy and Finance Minister Kang Man-soo also said, “Using taxes in real estate policy is not a good idea.” It is unfair to impose taxes on property and capital gains on owners of one home, who have nothing to do with speculation.

Though housing prices have dropped this year in most areas, property taxes rose 28 percent in Seoul and 19 percent nationwide, further burdening middle-class owners of a single home. The unreasonable rates are the fault of the former Roh Moo-hyun administration, which raised standard market prices and their reflection ratios in setting taxes. Under this grave situation, however, the incumbent administration has failed to deal with the comprehensive property tax. Disheartened by criticism that the Cabinet consists of rich people living in Seoul’s luxurious areas, both the government and the ruling party are only studying the pleasure of the public. Lim told a policy-making meeting of party lawmakers, “We must deal with a bill on boosting the real estate market in the extraordinary parliamentary session.” But lawmakers not belonging to the “Bubble Seven” areas, or hotbeds of speculation, showed no interest.

The standard level for the comprehensive property tax was set at 600 million won in 1999 based on high-priced houses. Over the past nine years, consumer prices have risen 33 percent. Apartment prices nationwide have shot up 69 percent and those in Seoul have soared a whopping 163 percent. The government presented measures June 11 to reduce the number of unsold houses. But they are not enough. To see expected results and stimulate housing transactions, supplementary measures are necessary.

When real estate trading stops and prices plummet, asset deflation and lower consumption are likely to ensue and in turn lead to recession and higher unemployment. Interest rate hikes will also further squeeze the housing market. If the incumbent government cannot lift the nation out of the “real estate trap” set by its predecessor, both the housing market and the economy are doomed.