[Desk Column] Dangerous Experiment

An environment where sellers and buyers each trade under favorable conditions aligns with market principles. In the real estate market, this would mean high holding taxes and low transaction taxes. However, market control through taxation has largely failed. Therefore, current presidential candidates pledge market stabilization policies focusing on expanding supply rather than taxes or financial regulations.

This approach intends to avoid repeating the failure of the Moon Jae-in administration, which suppressed demand through taxes and loans. There are also many voices that positively view the potential to resolve market distortions. Professor Kim Woo-cheol of the University of Seoul asserted at last month's Korean Tax Policy Association seminar that "there are clear limits to suppressing speculative demand through taxes." No matter how much speculative gains are absorbed by taxes, the speculative profit itself does not disappear, so ultimately, speculative demand can only be resolved through supply, not taxes.

However, there are also doubts about whether expanding supply is a panacea. First, it is a matter of time. It takes considerable time to supply sufficient quantities to the market. Good properties that everyone wants are always scarce. Ultimately, methods to incentivize multi-homeowners to put decent properties on the market must be implemented in parallel, which brings the discussion back to taxes. How to manage the two types of taxes?holding taxes (property tax and comprehensive real estate tax) paid for owning a house, and transaction taxes (capital gains tax, acquisition tax, registration tax) paid when buying and selling houses?is key. Predicting the new government's stance, transaction taxes will clearly decrease. Not only the main opposition party candidate but also the ruling party candidate have sent messages promising to ease transaction taxes, urging owners to "take the opportunity and exit."

In the end, clear differences will arise in how holding taxes, especially the comprehensive real estate tax, are handled, but the situation is strangely evolving. The ruling party candidate is boldly deviating from the current government's policy of strengthening holding taxes, likely due to concerns that taxing unrealized gains could worsen public sentiment. The proposed land holding tax, evaluated as part of holding tax strengthening, now carries the caveat "if the people do not want it." Delaying the schedule for the actualization of official property prices is also interpreted as part of this policy. Responding to his request, the government plans to announce specific measures in March, when the presidential election takes place. The leading conservative party candidate even advocates abolishing the comprehensive real estate tax altogether, so although there are differences in degree, a major policy shift toward easing holding and transaction taxes seems inevitable regardless of who wins.

When analyzing the causes of the Moon administration's real estate policy failure, the phrase "tried to beat the market" often appears. The Moon administration made the mistake of cutting off market participants' exit routes by raising both holding and transaction taxes simultaneously. As a way to overcome this, easing transaction taxes and a supply surge give hope for different results from the current government's policies, at least in terms of market stabilization. However, changes in holding taxes will affect the market more quickly and certainly than supply measures, whose timing and implementation remain uncertain. At the same forum, Professor Kim mentioned the limits of holding taxes in suppressing speculative demand but said, "Normalizing holding taxes, which have a significant equity effect, remains a valid task."

Of course, holding taxes cannot be a panacea for controlling house prices. Despite aligning with tax justice, in reality, they work only limitedly as a means to suppress speculative demand, such as through tax burden shifting and inducing selective property listings. Nevertheless, the impact of abandoning one of the two wings?holding taxes and supply?will not be small. In a razor-thin presidential election, candidates reversing their principles or abruptly changing tax policy directions out of fear of "losing metropolitan area votes" could be a dangerous experiment risking all of our futures, raising serious concerns.

Shin Beom-su, Head of Construction and Real Estate Department

This content was produced with the assistance of AI translation services.