IMF "Korea Needs to Reassess the Effectiveness of Real Estate Tax Policies"

2022 Annual Consultation Results Report

[Image source=Reuters Yonhap News]

[Asia Economy Sejong=Reporter Son Seon-hee] The International Monetary Fund (IMF) has recommended that South Korea reexamine the effects of its real estate tax system and enhance incentives for private sector participation in housing supply. It is interpreted that the IMF pointed out that various increases in property holding taxes and capital gains taxes, implemented to stabilize the real estate market, have led to a contraction in private housing supply.

Along with this, the IMF forecasted that South Korea's inflation rate will reach 3.1% this year, an upward revision of 0.9 percentage points from the 2.2% projection made in October last year.

On the 29th, the IMF released the "2022 Article IV Consultation Report" containing these details. The IMF conducts annual Article IV consultations to assess the economic situation of member countries. This report was prepared following meetings with South Korean authorities including the Ministry of Economy and Finance, the Bank of Korea, the Financial Services Commission, and the Financial Supervisory Service from January 11 to 25.

Regarding South Korea's household debt, the IMF welcomed the government's macroprudential measures and suggested that they need to be further strengthened. This implies reinforcing regulations such as the Loan-to-Value (LTV) ratio and the Debt Service Ratio (DSR) applied to individuals, which contrasts with President-elect Yoon Seok-yeol's campaign promise to ease loan regulations.

The IMF evaluated the pace of normalization of South Korea's monetary, fiscal, and financial policies following the COVID-19 crisis as "appropriate." However, it urged that "bold responses will be necessary if risks such as stagflation and economic downturn materialize." The IMF maintained its January forecast that South Korea's economic growth rate will be 3.0% this year, reflecting the effects of the first supplementary budget despite the recent spread of the Omicron variant.

However, by significantly raising the inflation forecast to 3.1%, the IMF expects the largest increase in 11 years since 2011. It also projected that the current account surplus will shrink somewhat due to increased domestic demand.

The Ministry of Economy and Finance stated, "The IMF's major policy recommendations on real estate, structural reforms, and climate change response largely align with the government's perspective," adding, "We plan to closely monitor market conditions and respond flexibly to ensure economic recovery and stability."

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