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The government is said to be getting ready to announce a set of measures to deregulate the real estate market, in order to revive the construction industry. The measures are expected to be announced before the Chuseok holidays begin on Sept. 14. Details have yet to be revealed, but it is expected that restrictions on selling rights of apartments under construction and rebuilding ageing apartments in the metropolitan area will be relaxed considerably. The government also appears to be looking into lowering real estate and capital gains taxes.
The government has announced several deregulatory steps aimed at the real estate market since June last year, when it scrapped regulations that prohibited people from reselling their homes until three years after purchase. But real estate taxes and financial restrictions were left untouched, and the result has been a continued slump in the property market. Deals have slowed to a trickle, while the numbers of newly-built, unsold apartments mounted and more and more construction companies closed down. It is not entirely good news that housing prices are declining across the country: demand could slow further while the threat of a rise in mortgage defaults could grow.
Official data puts the total number of newly built yet unsold apartments across the country at 130,000. That's far more than the 103,000 newly-built, unsold apartments seen just after the Asian financial crisis. Buying and selling of apartments is slowing down even further. Apartment sales have fallen 17 percent from March's 46,629 transactions to just 38,804 in July. Real estate prices in northern Seoul, which showed active buying and selling and a rise in apartment prices this year, have slowed down rapidly in recent weeks, falling 60 percent from 4,401 sales in April to 1,736 in July.
A total of 180 construction companies went bankrupt during the first six months of this year. Savings banks, which loaned a combined W12.4 trillion to builders (US$1=W1,047), are in crisis mode as close to W2 trillion of those loans have turned bad. At this rate, W230 trillion worth of mortgages extended by commercial banks may come under threat. The U.S. subprime mortgage crisis, in which falling real estate prices triggered a rise in non-performing loans, is not just a problem facing another country.
To prevent this crisis, people who really need to buy or sell their homes must be allowed to do so. Households owning just one home must pay lower capital gains taxes, while the government needs to take a serious look at changing financial regulations such as loan-to-value and debt-to-income ratios. It is wrong for a person owning just one home to have to think twice about selling his house due to excessive capital gains, real estate acquisition and registration taxes. There is no reason to delay lowering real estate taxes for senior citizens who have no income. We must ensure that such deregulatory steps do not fan real estate speculation, driving up housing prices. But government officials must realize that the reason we pay taxes to support them is so that they can come up with wise plans to deal with the situation.
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