| "There is little response, though some people are showing interest in unsold apartments."
A real estate agent based in western Seoul said this to The Dong-A Ilbo Friday on the people`s response to the government`s cuts on capital gains and acquisition taxes announced Sept. 10. Many other agents said they were suffering business trouble, but avoided giving more detailed answers.
President Lee Myung-bak`s latest housing measures was passed by parliament for retroactive application from Sept. 24. Sales of certain unsold apartments grew but the overall mood remained chilly.
This market response is not new. Twenty-two tax revisions have been made prior to the Sept. 10 measures but had limited effect on boosting the sluggish housing market.
○ Measures mostly had weak impact
Dong-A consulted Real Estate 114 and Cho Joo-hyun, a real estate professor at Konkuk University in Seoul, to examine the market responses to 22 government measures. The analysis was made on three categories: whether transactions increased through deregulation and demand stimulus, stabilization of the jeonse (rental fee based on a lump sum deposit for apartments) market, and price stabilization through supply expansion and stronger regulation.
For measures to boost transactions through deregulation and demand stimulus, apartment transactions over a two-month period before and after the announcement of measures were examined. For stabilization of the jeonse market, the increase rate of apartment jeonse prices two months before and after the measures was examined, while that of apartment prices was examined for price stabilization measures.
Among the 22 measures, just eight contributed to achieving their target by reviving transactions slightly or suppressing jeonse or sale prices. When a revision to the comprehensive real estate tax came Sept. 23, 2008, the base for comprehensive real estate tax was raised to 900 million won (809,352 U.S. dollars), but transactions in the ensuing two months of October and November dropped to 110,638 cases from 137,597 two months prior to the announcement of the measure.
As for measures announced May 10 this year, the government lifted anti-speculation measures for the three most expensive districts in southern Seoul, but the number of transactions dropped to 105,998 between June and July from 122,606 in March and April.
Over the past five years, the government has used 150,000 measures to boost real estate transactions, but just four have raised trading. The effective measures included the exemption of Feb. 12, 2009, on transfer income tax for five years for those buying new homes and the March 2009 tax revision that abolished heavy transfer income tax for multi-home owners. Three of the four were announced in February and March, when seasonal factors prompted many people to move.
On the other hand, anti-sale policies were immediately effective. The August 2009 measure for expanding the so-called low-cost "bogeumjari" houses to 320,000 units by this year contributed to suppressing housing prices. Measures announced in September and October 2009 to tighten debt-to-income ratios also helped lower apartment sales prices in November 0.06 percent.
In short, measures to boost the property market were largely useless whereas those that sought to curb prices were immediately effective.
○ Frequent measures build market tolerance
Analysts say the reason the real estate market remains muted to stimulus measures is the global economic downturn.
Park Deok-bae, a research fellow at Hyundai Research Institute, said, "The real estate market tends to move flexibly in good conditions, but not when conditions turn sour. With the economy in doldrums, it is difficult to stimulate markets via demand stimulus and deregulation measures."
Frequent announcement of different measures has also numbed the market, other analysts say. Since deregulation measures came one by one, this led to a wait-and-see behavior as people held hopes of future measures.
Kim Hyun-ah, a researcher at the Construction Economy Research Institute said, "Since measures poured out constantly, people tended to expect new measures. This only built up market tolerance, which is the biggest failure of the government`s real estate measures."