The Lee Jae-myung administration has announced four rounds of real estate measures. Real estate is the only sector where so many policies have been rolled out within less than a year of the term. That is proof of the government's strong policy will for stabilizing people's housing. But the real estate market is moving in a direction different from the government's intention. Home prices in key areas of Seoul are hardly being contained, and the rental market for jeonse and monthly rents is worsening. Where should these problems be solved first? ChosunBiz sought out an independent expert who listens to the market more closely than anyone else, rather than looking for a standardized answer. They did not hold back strong criticism, blunt advice, and at times unique policy suggestions and ideas for the government. In five parts, we present their diagnoses and solutions through interviews. [Editor's note]
"If you are going to impose a heavy capital gains tax on multiple-home owners, it is reasonable not to base it on the number of dwellings but to set a threshold based on the market value aggregates of the dwellings held and tax accordingly. Applying a punitive tax rate just because someone owns a low-priced dwelling in a non-Seoul area is unreasonable and causes many side effects."
On Feb. 2 at a Sogang University lab in Sinsu-dong, Mapo-gu, Seoul, Professor Lee Sang-geun suggested that the criteria for imposing capital gains tax on multiple-home owners should be changed. Under the current tax system, people who own low-priced dwellings in non-Seoul regions are also classified as multiple-home owners and face high tax rates, and such a system distorts the market, Lee said. A leading domestic digital platform expert who graduated from Waseda University in Japan and the University of Nebraska–Lincoln in the United States, Lee has researched platforms such as Blockchain and has expanded the scope of research to analyze the real estate market, a real asset. He is currently the head professor of the Department of Real Estate at the Sogang University Graduate School. In 2017, he was listed in Marquis Who's Who in the World, one of the world's three major biographical dictionaries. The following is a Q&A with Lee.
- The president, the government, and the ruling party declared the end of the grace period for heavy capital gains taxes on multiple-home owners. Your view?
"Saying you will use taxes to stabilize home prices is meaningless and will have no effect. However, if you are going to use taxes, it is better to impose them on an aggregates basis."
- What is an aggregates basis?
"It means that instead of defining multiple-home owners by the number of dwellings and imposing a heavy capital gains tax, you add up the market value aggregates of all dwellings held and, for example, if it exceeds 3 billion won, you impose capital gains tax on that. Right now, even if you own a 200 million–300 million won house in the countryside (non-Seoul regions), you are grouped as a multiple-home owner. Disliking this, people sell their non-Seoul apartments and keep only one rock-solid unit in Seoul, which ultimately leads to falling real estate prices in non-Seoul areas."
As Lee pointed out, the current criteria for multiple-home owners are set by the number of dwellings in the Seoul metropolitan area versus non-metropolitan areas. Dwellings with an officially assessed value of 100 million won or less, or dwellings in depopulating areas, are excluded from the count, but most apartments in non-Seoul regions are included. Once you become a multiple-home owner, heavy capital gains taxes are imposed when selling apartments in regulated areas such as Seoul. To avoid such regulations, people are selling non-Seoul apartments.
- What are the advantages of such a system?
"It eases demand for a single rock-solid unit. According to data from the Korea Real Estate Board over the past year, Gangnam apartments rose 10% and northern Seoul rose 5%. In contrast, non-Seoul regions and large metropolitan cities fell 1%. This shows that buyers no longer buy 'just anywhere.' It means that demand for Seoul, especially the Gangnam area, where asset value is certain, is becoming more solid, whether for own use or investment. Universal regulations applied nationwide no longer work at all on the subtle supply-demand conditions of key areas. In this situation, if you impose a heavy capital gains tax on an aggregates basis, demand for a single rock-solid unit will ease, and you can also reduce sales aimed at disposing of non-Seoul dwellings."
- Home prices are soaring in some areas such as Gangnam, Seoul. What measures can stabilize prices in those areas?
"We should consider sharply raising floor area ratios to ease the Gangnam scarcity premium. However, raising the ratio is not 'just build more.' Transportation, schools, parks, and other infrastructure must be expanded as a package to achieve supply effects without harming residents' quality of life. Also, rather than a binary choice of deregulation or suppression, allow high-density development, institutionalize infrastructure contributions from development gains, and at the same time, instead of protecting only the vested rights of existing dwelling owners, increase the supply of rental dwellings to open a path for new demand groups to enter Gangnam."
- The government is working to expand public housing (including rentals) to stabilize housing for young people and others. What can enhance the effectiveness of this policy?
"I want to say that the quality of location determines the success or failure of the policy. The old approach of building on the outskirts of the Seoul metropolitan area fails at jobs-housing proximity and instead heightens vacancy risk. Now we should move toward transit-oriented high-density development in central Seoul or a social mix model using idle sites. What young people need is not just 'walls and a roof,' but a 'productive location' linked to jobs. We must expand residential infrastructure to enable sustained housing demand. If necessary, lift greenbelt restrictions in the Gangnam area to increase the supply of public rental dwellings. There is still plenty of Gangnam land in greenbelts, such as Jagok-dong and Irwon-dong."
- What is the fundamental problem with the government's real estate policy?
"They approach the dwellings issue with too narrow a view. If you make policy focusing on a single dwelling, you can never solve the dwellings problem. You have to view dwellings from an industry perspective. The government seems unable to do this."
- What do you mean?
"Dwelling prices inevitably follow where jobs are, and the problem is not solved by just tightening loans in areas where prices rise. Conversely, if industry and corporations are dispersed, you will not see the phenomenon where only certain areas' home prices surge while other areas suffer from unsold inventory and a broken market."
- Please give a specific example.
"We can look at Taiwan. TSMC has dispersed its plants to non-Taipei regions, including Hsinchu Science Park south of Taipei, as well as Taichung, Tainan, and Kaohsiung. Jobs are dispersed accordingly. Because of this, the gap in real estate prices between Taipei and other regions is not as large as in Korea. In Korea as well, Korea Aerospace Industries (KAI) moved to Sacheon and Jinju in South Gyeongsang, supporting the local economy. In contrast, Busan, Daegu, and Gwangju, which lack major corporations, have few jobs and shrinking housing demand. Solving this fundamental problem will solve home prices, too. Bold government support is needed so private corporations can set up in Busan, Daegu, and Gwangju."
- Are you saying we cannot do it like Taiwan?
"Take Busan's Jeonggwan New Town. It is past Haeundae's Dalmaji Hill. They said they would attract a new town, but there are no corporations; it's all apartments or shopping malls in the Osiria Tourism Complex. With no quality jobs, unsold units mount, young residents move out, and it becomes a city of only older people."
- If there is an alternative?
"We must channel the money and infrastructure investment concentrated in the Seoul metropolitan area into non-Seoul regions to bring in corporations. The Metropolitan Express Railway (GTX) has announced lines A, B, C, D, and E. Do you know how much it costs to open just one line? 1 trillion won. If you spend that money on attracting corporations to major non-Seoul cities, you achieve balanced national development, stabilize Seoul home prices, and revitalize regional economies. In U.S. states like Georgia and Texas, they lower or exempt corporate taxes and provide factory sites for free. Why can't we do this and instead pour money only into railways in the metropolitan area?"
- Are there any overseas real estate policies that Korea should consider adopting?
"Regarding jeonse, we should actively adopt mechanisms like escrow for deposits. Deposits account for a large portion of the assets of working-class and middle-class households, and if the transaction structure is unstable, trust in the entire market is shaken. Like in the United States or Europe, we should mandate that deposits be kept with a third-party trusted institution to fundamentally block structures where landlords can arbitrarily divert deposits or shift 'empty-can jeonse' risks onto tenants. We can also consider expanding institution-led long-term rentals (BTR, Build-to-Rent) as in some countries. A market dominated by individual landlords leads to uneven quality of dwelling management and great uncertainty about lease renewals. Like in the United States or Germany, we should grow the institutional rental market where large pension funds or professional managers oversee thousands of units, guaranteeing quality housing services and lease terms. This can provide housing stability for tenants and a mechanism to modulate owner-occupier demand for the market."