April 24, 2024

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Finance Minister Hong Nam-ki speaks during an annual parliamentary audit of his office at at the National Assembly, October 5. (Yonhap)

Finance Minister Hong Nam-ki came under fire during a parliamentary inspection on October 5 for failing to stop the relentless rise in housing prices despite dozens of policy measures implemented in recent months.

To address the nationwide outcry over soaring housing prices, the Moon Jae-in administration has introduced 26 sets of real estate policies. The latest centered on raising taxes on owners of multiple homes and rooting out property speculation.

But there are signs these policies may backfire.

“The punitive tax policy promoted by the government to force owners of multiple homes to sell their properties only resulted in an increase in house prices,” Rep. Song Eon-seog of the main opposition People Power Party said.

Contrary to the government’s hope -- that the heavier property tax burden would push owners of multiple homes to put some up for sale -- it appears that many have instead opted to gift apartments to family members. This is because they would most likely face stiffer taxes, including the higher capital gains tax and comprehensive real estate tax, if they were to sell their properties, whereas gift taxes are lower. Expectations about continuous price increases also appear to have contributed to the trend.

During the first eight months of this year, gifts accounted for 6.8 percent of all apartment transactions in the country, hitting their highest level since 2006.

Apartment prices in the Seoul metropolitan area rose 13.11 percent from January to August this year, the highest increase since 2006, according to data from the Korea Real Estate Board.

Hong apologized for failing to resolve market instability, but said the government would continue to pursue a consistent real estate policy in order to prevent confusion under the broad framework of expanding the housing supply, protecting end users and eradicating speculation.

“We will closely monitor changes in market conditions and strengthen policy efforts to speed up housing supply under the principle that housing supply comes first,” he said.

Currently, the government is working on a plan to provide a total of 2.05 million housing units by 2025. To support first-time homebuyers, it offers acquisition tax exemption benefits as well as relaxed mortgage requirements, such as a higher cap on the loan-to-value and debt-to-income ratios.

A new set of measures aimed at curbing household debt growth will be unveiled early this month as planned, the minister added.

“The household debt measures to be announced in October will be designed to minimize the impact on the working class, the vulnerable group and end users,” he said.

To cope with snowballing household debt amid low interest rates, financial authorities have called on commercial banks to apply stricter lending regulation in late August. Such guideline has been urging lenders reduce the size of unsecured loans to a 100 percent of a borrower’s annual income and raise lending rates to 3-4 percent.

By Park Han-na (hnpark@heraldcorp.com)