The fears over the housing ‘transaction cliff’ are looming and jeonse crunch will likely deepen in S Korea as the government’s property-boosting measures of transfer and acquisition tax cuts are set to expire at the end of 2013

December 26, 2013 Leave a comment

Fears over ‘housing transaction cliff’ reemerge

Ko Jae-man, Baek Sang-kyung

2013.12.25 17:51:05

The fears over the so-called housing ‘transaction cliff’ are looming and jeonse crunch will likely deepen in South Korea as the government’s property-boosting measures of transfer and acquisition tax cuts are set to expire at the end of this year. Jeonse is a house rental system unique to Korea, based on a lump sum deposit paid by a tenant to a landlord at the start of a rental contract. Worse yet, the bill on abolition of double taxation for multiple-home owners remains pending at the National Assembly. If the ruling and opposition parties fail to reach consensus over the passage by late this year, double taxation for multiple-home owners will revive from early next year, which could stand in the way of active housing transactions.
The nation’s house transactions remain sluggish in December ahead of the end of this year when tax breaks designed to stimulate property market are expected to end. Currently, the transfer tax is exempted for residential properties less than 85 square meters or less than 600 million won ($566,839) for five years and acquisition tax exemption is also provided for first-time home buyers.
The number of apartments that changed hands in Seoul stopped at 4,868 from 1 to 24 in December, according to a local property information provider. The number is down 26 percent from a month ago and slid a startling 29 percent from last December. With the expiration of the two sets of tax benefits later this month, actual home buyers were expected to advance the date for purchasing houses, resulting in a brief rise in house transactions. However, it was not the case.
Given the developments, the nation’s house transactions will further decline earlier next year when tax benefits are expected to end, concerned market observers.
Apartment transactions in Seoul surged 32 percent to 9,035 in June when temporary acquisition tax cuts were set to end. However, after the expiration of the tax breaks, the number dropped to 1,912 in June, the lowest level since 2006.

Filed under Macro Trends

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