Heard on the Street: If South Korea’s draconian measures work, other major property markets may follow suit
By Mike Bird Close Mike Bird July 15, 2020 6:25 am ET The government of South Korea plans to sharply raise capital-gains taxes for home flipping and ramp up taxes on corporate property to cool a price boom. That should have property investors looking over their shoulders—and not just in Korea’s expensive capital, Seoul.
Capital-gains taxes on Korean properties resold after less than a year will rise to 70%, with a 60% levy on properties sold between a year and two years after purchase. Holding taxes on real estate will rise to as high as 6% for corporations and households that own multiple expensive properties, particularly in so-called speculative zones.
Property prices have risen almost 50% in the Seoul Metropolitan Area in the past eight years. Small apartments in the city proper have more than doubled in price. And now Korea is facing the same challenge as many advanced economies: How to keep interest rates low without blowing bubbles in scarce real estate?
It would be unfair to say the measures haven’t worked, since prices might have risen more without them. But they haven’t prevented prices from grinding higher. And ultralow interest rates for the foreseeable future will be a support to property, even as the pandemic’s aftermath weighs on incomes.
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