South Korea To Cool Real Estate Market With Higher Taxes

by Mary Swire, Tax-News.com, Hong Kong

02 September 2005

South Korea's top economic policymaker claimed on Thursday that anti-speculation measures unveiled on Wednesday will eventually make it impossible for speculators in the real estate market to earn capital gains higher than money market interest rates.

In a local radio interview, Finance and Economy Minister, Han Duck-soo argued that tougher taxation on property holdings and capital gains taxes will significantly reduce speculative gains from investments in homes and land.

On Wednesday the government unveiled a package of measures that it hopes will reduce, and eventually eradicate, speculative forces in the property market, including heavy taxes on capital gains for multiple-number home owners.

Consequently, capital gains taxes for the owners of two houses will be raised to 50 percent from the current 9-36 percent range, while taxes on property holdings will be raised to 1 percent by 2019 from the current 0.15 percent.

"With drastic anti-speculation measures, part of idle funds will return to financial markets. Funds should flow into the investment sector, and we are studying ways to drive more funds into more productive sectors," Han explained.

He added that more funds will flow into the capital market and industrial sectors if private sector-initiated development projects, project-financing and private equity funds progress steadily.

Han also stated that follow-up measures will see the government providing additional public land to supply more homes.

"Housing prices should fall below the October 2003 level when the measures are introduced, and if necessary, the government will supply more homes," he noted.

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