As the "Oct. 15 real estate measures" announced by the Lee Jae-myung administration placed the emphasis on curbing demand through loan regulations and expanded regulated areas, there are growing expectations inside and outside the ruling camp that "the next step will be tax reform through strengthening property holding taxes." However, the ruling party leadership, with local elections in June next year ahead, is taking a cautious stance on the direction and timing of tax policy.
The Democratic Party leadership on the 17th described the government's real estate measures as "an unavoidable step to stabilize the greater Seoul dwellings market" and "intended to curb gap-investment speculation." Still, with the possibility of backlash from end users in Seoul and the greater Seoul area, the mood is to closely watch the current of public sentiment.
In particular, it is stressing the position that "swift supply must proceed in parallel." Supreme Council member Jeon Hyun-hee said at a Supreme Council meeting at the National Assembly that "to resolve market confusion and protect end users such as young people and low-income earners, effective supply measures that provide quality dwellings at reasonable prices must go hand in hand," urging swift supply measures that leverage private-sector supply, public land in Seoul, aging public office buildings, and idle sites.
Supreme Council member Lee Eon-ju also said that "powerful supply measures must, without fail, proceed swiftly and concretely," asking the government for "detailed measures that include even groundbreaking and sales schedules."
Deputy chief of floor operations Moon Jin-seok likewise told reporters that regarding future additional supply plans, "I think it will proceed with a pincers-style supply approach of 'how much volume will be supplied to which area,'" adding, "It will take some time because it needs to be prepared in detail."
By contrast, some within the party publicly argued that strengthening holding taxes and lowering transaction taxes should go in parallel with supply measures. Rep. Jin Sung-joon, a former policy chief, said in a radio interview that "it is unavoidable to lower acquisition and registration taxes, which are transaction taxes, and raise holding taxes," stressing that "the sooner the tax reform, the better."
He said that while political judgment ahead of next year's local elections should be considered, tax reform must be carried out simultaneously for the already announced real estate supply and demand-curbing measures to be effective. The idea is to adjust the effective tax rate for owners of high-priced dwellings to seek to ease asset inequality and firmly stabilize housing prices.
Jin's remarks are in line with an internal Democratic Party report. The "re-election strategy report" the Democratic Party published two years ago pointed out that "liquidity released by low interest rates flowed into real estate, but we failed to introduce early on yield-adjustment devices such as strengthening holding taxes." Some in the ruling camp cite this to argue that "this administration should hurry tax reform early in its term."
Specific tax reform options being discussed include: ▲ indirect strengthening of tax burdens by raising the realization rate of officially assessed prices and the fair market value ratio ▲ shifting to a taxation system proportional to asset value rather than the number of dwellings owned. The intent is to rationalize tax burdens around end users rather than speculative purposes while levying more taxes on owners of high-priced dwellings to enhance tax equity.
Jin said, "There is discontent because people who own multiple dwellings still face heavy taxation even though the total is worth less than one high-priced Gangnam apartment," adding, "It is necessary to design a progressive system based on the total price of all dwellings held by adding up the entire price of the dwellings owned."
However, the ruling party leadership is maintaining a cautious view that tax discussions are "still early." Chief spokesperson Park Soo-hyun, when asked whether "tax reform including holding taxes is under discussion," said, "We are also considering additional supply and rationalizing taxes," but added, "We cannot provide details on tax rationalization and additional supply measures, nor is it the stage to do so." Deputy floor operations chief Moon also said, "There have been ongoing discussions on raising holding taxes, but nothing has been discussed about when."
The government also has a cautious stance. First Vice Minister Lee Hyeong-il of the Ministry of Economy and Finance said in a radio interview that "we will make a judgment while comprehensively considering the impact on the real estate market and tax equity."
Political burden lies behind the party and government's hesitation on real estate tax reform. Pulling out a tax-tightening card ahead of local elections in June next year could trigger an exodus of real estate public sentiment.
Not a few voices within the ruling camp mention the "Moon Jae-in administration learning effect." The Moon Jae-in administration poured out 27 rounds of measures to rein in housing prices during a surge, raising holding, capital gains, and acquisition taxes in succession, but the result was to spur a preference for "one smart unit," sending prices and jeonse and wolse in key areas such as Gangnam soaring. The assessment is that this tax policy ultimately became a decisive factor in the change of government.
A ruling-camp official said, "Everyone remembers that the policy failures during the Moon administration laid the groundwork for the change of government," adding, "This time, we need to find a balance point that captures both the market and tax justice."