How Long Does Shouting Work for Controlling Housing Prices? A 40-Year Journalist’s Analysis

[Choice Times=Se-Hyung Kim, Veteran Journalist]

The views expressed below do not represent the position of this outlet. The article is published to present diverse perspectives. (Editor’s note)

Will the current administration end the myth of “real estate never loses”?

The president and the chief of staff have been taking turns appearing on social media and broadcasts, repeatedly shouting that this time they will see who really wins—the government or the belief in invincible real estate.

They warn that if multi-home owners refuse to sell and hold out, after May 9 they will be hit without mercy with heavy capital-gains taxes (60% for two homes, up to 82.5% for three homes). To those who say, “We’ll just wait until this administration ends,” they threaten to wield an even scarier club—apparently referring to heavier property taxes.

Even now, there are surtaxes on property holdings by multi-home owners, but with lowered assessed values and various messy devices such as fair-market value ratios, taxes in reality are not that frightening.

The Democratic Party government’s decision to bring back punitive taxation is partly because the conservative Yoon Suk-yeol administration dismantled most of the heavy-tax measures.

This time, attention is focused on how harshly multi-home holding taxes (especially the comprehensive real-estate tax) will be imposed after May 9, and how much property tax will be levied on ultra-luxury homes—those worth over 10 billion or even 30 billion won—which previous governments did not touch.

In the United States, property tax of 1.0–1.5% of the purchase price is imposed straightforwardly, without complicated “fair value” calculations. Japan’s holding tax is also far heavier than Korea’s, at around 0.8–1.0%.

I asked a tax accountant to calculate the holding tax plus comprehensive real-estate tax on a 5-billion-won luxury apartment in Korea; the answer was 36.63 million won. That amounts to about 0.73%, which cannot be called extremely low.

At a recent town-hall meeting in Changwon, South Gyeongsang Province, the president stirred public anger with a dramatic contrast: “In Seoul, one pyeong of an apartment costs 300 million won; in Changwon, one entire house costs 300 million won.”

I checked with the Korea Real Estate Board to see whether there were actual transactions at 300 million won per pyeong. There were no standard-size (84㎡) apartments priced at 8 or 10 billion won. The highest transaction for a standard-size unit was 7.2 billion won at Raemian One Bailey, up from 5.5 billion won early last year. A 35-pyeong unit at Apgujeong Hyundai jumped from 5.05 billion to 7 billion won.

Owners of ultra-luxury apartments saw prices surge by as much as 40% in a single year, pocketing windfall gains of 2 billion won—an amount ordinary people could never touch in a lifetime.

Last year, the stock index doubled, but stock investors are mostly retail “ants.” Few would have made even 100 million won. Compared with that, the explosive rise in ultra-luxury real estate does appear “unfair,” as the president put it.

So it is not strange to hear talk of a “real-estate-ruined nation” or Japan’s “lost 30 years.”

The president repeatedly warns, “Seize the opportunity while it is given. You will know this was the last chance. You don’t have to sell if you don’t want to—but we will revise laws and systems so that multi-home owners incur losses.” This seems to be winning popular support.

It likely helped Gallup approval ratings jump to 63% last week. Approval rose with the KOSPI breaking 5,000, and the public seems to feel catharsis from cracking down on real estate.

The People Power Party’s leader Jang Dong-hyuk and its spokesperson protest loudly, but it sounds pitiful.

Most citizens probably carry a long-held resentment that the myth of “real estate never loses” needs to be shattered at least once.

Perhaps frightened by the president’s shouting, a significant number of apartments have come onto the market in Seoul, with asking prices reportedly dropping by hundreds of millions of won.

But will many deals actually close before May 9? In my view, with lending already tightly restricted and buyers expecting panic selling once momentum breaks, few will step forward eagerly.

Eventually, the substance of “you will know this was the last chance” will be revealed. Most likely, it means terrifying taxes. Frankly, that may have been the real aim. That is the story while the new administration’s blade is still sharp.

The ultimate goal of housing policy is downward price stabilization. Korea’s price-to-income ratio (PIR) is around 15—meaning one would have to save for 15 years without spending a penny to buy a median apartment. In the UK, France, and Japan, PIR is generally under 10. Koreans’ backs are bent too far.

But can apartment prices really fall through taxes alone?

The Korea Housing Industry Research Institute submitted past data to the Blue House and key government offices, showing that “the effect of heavy taxation lasts only three to six months.” The effectiveness of presidential shouting was also short-lived under Roh Moo-hyun and Moon Jae-in.

Smart money glances at the fact that new apartment supply in Seoul fell from 46,000 units last year to 29,000 this year, and will drop to just 9,000 in two years. That is the code telling us the government cannot beat the market—something we just experienced in the currency war.

In the end, supply and demand decide. Only fresh new supply has the magic to cool the market.

The LH-led plan to supply 60,000 units is said to be a 70% carbon copy of the Moon administration’s August 4, 2020 measures. Officials at the Ministry of Land have gone too far. If it didn’t work five years ago, will it work now?

To stabilize prices, the only paths are reducing demand or ensuring substantial new supply. Reducing demand means easing the pressure on Seoul.

Both ruling and opposition parties have agreed to relocate the presidential office and National Assembly to Sejong. If a target year around 2029 were set, the effect would be significant. Without a clear timeline, even a willing president will face obstruction from aides near the end of the term, and the plan will evaporate.

The president also promised to relocate 300–400 public enterprises to the regions. He should move quickly.

I once read in The Economist that in cities like New York and London—where people worldwide rush to buy homes—non-resident owners who buy homes but do not live in them, instead renting them out, face penalty property taxes of 3–4%.

In Seoul as well, tens of thousands of apartments in ultra-luxury areas, including the Gangnam three districts, are reportedly held by Chinese and American nationals, overseas Koreans, and wealthy provincial elites for speculative purposes.

This is a good chance to strike them too with special taxes—create a structure where, if they don’t sell, taxes strip away the gains.

If the 60,000-unit supply plan fails, Seoul apartment prices will inevitably explode again.

Experts say the easiest supply measure is to accelerate redevelopment of 300,000 units in first-generation new towns and raise floor-area ratios from the current 200% to over 500%. That would allow supply of 300,000 units—five times the current plan.

In the past, average household size in first-generation new towns was 3.9; now it is 2.1. If the standard unit size is reduced from 34 pyeong to 25 pyeong, supply could increase by another 20%.

Personally, I would recommend boldly releasing greenbelt land, as President Lee Myung-bak once did.

When the Booyoung Group, a rental housing operator, met Democratic Party lawmakers, all they heard was “LH public construction.” Public-sector obsession is the road to defeat. The Democratic Party has long been haunted by a “public-sector ghost”—a sure path to failure. Lead with the private sector.

If there is fear that private developers will reap excessive profits, simply allocate the additional floor-area ratio to rental housing and reintroduce bond-auction systems so the state can reclaim the gains.

Hegel said the true tragedy is not evil defeating good, but good fighting good and one side losing.

If public (LH) and private (redevelopment) forces fight while prices surge again, that will be the real tragedy. At that point, no amount of shouting will matter—people will just laugh.

#HousingPolicy #RealEstateMarket #SouthKoreaPolitics