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Koreans owning a 112 sq.m apartment in the wealthy Daechi-dong area of Gangnam will have to pay W5.27 million in real estate taxes this year (US$1=W945). This is 3.4 times more than what they paid last year. Koreans owning a 115 sq. m apartment in Mokdong in western Seoul will each pay W4.4 million in real estate taxes, three times higher than last year. In Gwacheon just south of Seoul, people owning 89 sq. m apartment will pay W3.5 million in real estate taxes, or 2.85 times more than 2006.
Last year, the average monthly salary of employed urban residents in Korea was W3.44 million. Just because they are living in Seoul and the surrounding metropolitan area, residents owning small to mid-sized houses have to pay taxes worth more than the monthly incomes of average Koreans. They didn¡¯t buy the property for speculative purposes. They didn¡¯t make money illegally. They just happen to live there. Yet their taxes just shot up two to three times. If they have to fork out their entire monthly salaries to pay taxes, it shows a government desire to extort money from them. This is abuse.
The government¡¯s rationale may be that these people should pay more taxes since their wealth has increased with the rise in real estate prices. But the reason real estate prices have soared is because housing supply has decreased, with the government focusing only on tax hikes to tame prices rather than building more attractive homes. The government¡¯s centrally directed land development programs across the country has simply created a construction boom and increased real estate prices. On top of that, the government has spent W60 trillion to compensate land owners who must move out for the construction projects. This money has been used to buy other land, boosting real estate prices even more. Now the government is trying to shift the consequences of its own mistakes on home owners.
The government is simply saying, ¡°If you don¡¯t have the ability to pay taxes, sell your house.¡± The president said, ¡°If you go to a neighborhood with cheaper houses, you can pay the 10 percent transfer tax and have money left over.¡± Rather than encouraging people to earn more and move to bigger homes in better neighborhoods, he¡¯s recommending them to lose money and move to smaller homes. This is the sense of justice held by this government.
Out of the 380,000 Korean households that must pay comprehensive real estate taxes this year, 36 percent of them own just one home. Most of these people started off owning a small house and eventually were able to afford bigger homes. For these people, their houses are not just places in which to live, but an important source of retirement funding. That¡¯s a universal aspect of the Korean lifestyle. Real estate accounts for 77 percent of household wealth in Korea.
Other than the measly payments doled out by the National Pension Service, this administration has been unable to prepare any other safety net for retirees. Yet it is not willing to let people own their only house. This is simply tax abuse.
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