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The question of lowering real estate sales taxes is now officially being discussed. Sohn Hak-kyu, head of the United New Democratic Party, during his first news conference on Jan. 11 said he intends to address cutting real estate sales taxes for households with only one home during the February session of the National Assembly. The Grand National Party welcomed SohnĄ¯s announcement. President-elect Lee Myung-bakĄ¯s Transition Committee also said it intends to cut real estate sales taxes as soon as possible.
Now Sohn has made the first move, discussion of the issue, which was among the top items on the list of complaints by the public, has become lively. The GNP should have been the first to propose this plan: many voters who picked GNP candidate Lee Myung-bak did so because they were sick and tired of being harassed by the illogical real estate policies of the Roh Moo-hyun administration. And this discontent was largely responsible for bringing Lee a record win at the polls. The GNP knew this, but has been waiting on the sidelines, afraid of driving real estate prices up and triggering the wrath of the Roh administration and those who supported it. But regardless of the pros and cons behind lowering the real estate sales tax, it is a positive development to see the issue being discussed.
Cutting the tax is a starting point for rectifying the flawed real estate policy of the Roh administration, which drastically increased taxes in order to keep people from buying or selling their homes. The lowered sales tax is good news for people who wanted to sell their existing home after buying a new one or wanted to sell their homes to avoid paying the comprehensive real estate tax. And if more homes are put on sale, we could see real estate prices stabilize.
No concrete measures have been announced yet, but there seems to be no difference between the ruling and opposition parties in the view that the real estate sales tax must be cut. At present, a home that has been owned for more than three years is subject to as much as a 45 percent tax deduction on gains from selling it. For people who have owned a house for more than 20 years, ways are being considered to offer them between 60 to 80 percent deductions on the gains.
To maximize the benefits of lowering real estate sales taxes, we need to change the regulation that limits such perks to houses that cost no more than W600 million (US$1=W938). That standard was created almost 10 years ago and hasnĄ¯t changed since. But considering the economic growth rate and rise in consumer price over the last 10 years, a more realistic limit would be between W900 million to W1 billion.
Regarding the comprehensive real estate tax, the Transition Committee has reportedly decided not to alter it for now, wary of impacting real estate prices. Its concern is understandable. But it would be wrong to leave a flawed set of taxes untouched indefinitely. The next government must look for ways to ease the comprehensive real estate tax burden on long-term, single home owners and senior citizens, as well as considering ways to keep real estate prices from rising suddenly.
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