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[Editorial] Perils of hasty policy shift

President Yoon’s plan to ditch current policy on appraised property value needs more preparation

By Korea Herald

Published : March 22, 2024 - 05:31

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In recent years, many Korean homeowners have come under overwhelming pressure over soaring property taxes, due partly to the previous Moon Jae-in administration’s controversial real estate policy to increase the state-led declared prices of properties to 90 percent of market value by 2035.

President Yoon Suk Yeol announced in a town hall meeting on Tuesday that the government will abolish the “reckless” declared real estate price policy, openly criticizing Moon’s policy that resulted in sizable jumps in property and other related taxes.

Each year, the government annually announces declared prices of apartments and other types of real estate through a survey nationwide. The appraised prices are widely used by public officials and organizations, as they form the basis for 67 administrative policies and systems, including property tax, comprehensive real estate tax and health insurance premiums.

In November 2020, Moon offered an ambitious road map to rationalize the appraised prices of real estate aimed at narrowing the gap between the declared prices and real market value, but the policy backfired as the pace of increase in declared prices was irrationally fast.

“During the five-year period of the Moon administration, the declared prices surged by an average of 10 percent per year,” Yoon said. “The artificial increase in the declared prices generated enormous side effects and made people greatly suffer.”

Yoon did not hide his negative view of the policy, claiming the “misguided” real estate policy only increased the housing burden on ordinary people and worsened living conditions.

Yoon argued that the Moon administration had attempted to rein in skyrocketing house prices, which resulted from its own policy failures, by imposing “punitive” taxes, referring to the fast-paced increase in declared prices.

Yoon’s critical remarks are not groundless. The appraised prices jumped 19.05 percent in 2021 and 17.2 percent in 2022, dramatically higher than the 4-5 percent annual rise between 2016 and 2020.

The Moon administration’s plan to raise declared property prices, incidentally combined with the booming property market, translated into an explosive hike in taxes on home ownership, increasing the number of those who had to pay comprehensive real estate tax and prompting strong complaints from people hit by unexpected high property taxes and other related taxes.

In response to surging taxes, critics raised the issue of a “property tax bomb,” and the government collected a record 3.3 trillion won ($2.5 billion) in comprehensive real estate tax, compared to a mere 400 billion won in 2018.

To abolish the current declared price policy, the related law should be revised. Yoon said the government will push ahead with various tools to generate the same effect, even before legislation is completed.

The overall direction of the reform proposed by Yoon seems reasonable. But there are a host of critical issues that he has to address. First, there are opinions from experts and the public that the gap between declared prices and market value should be narrowed at a steady pace in the long term. Too wide a gap could distort the market mechanism.

Second, Yoon might commit the same mistake as Moon in hastily pushing for the abolition of the declared price road map. Moon stoked great backlash by abruptly introducing the controversial plan without collecting enough public opinions and analyzing the property market conditions thoroughly.

The government said last year it would review the problems with the declared price policy and announce the final result of the state-led assessment on the issue in November 2024. Yoon’s announcement Tuesday, in other words, has artificially shortened the policy preparation period by about seven months to come ahead of the April 10 general election that will determine the composition of the National Assembly.

Changing assessment standards involving property taxes is a critical issue, potentially affecting a wide range of other taxes and state policy systems. The government should take more time to prepare its policy and seek ways to set optimal declared prices.