SEOUL, April 2 (Yonhap) -- South Korea's latest real estate tax breaks and other stimulus measures could give a much-needed boost to home transactions that have been almost frozen due to a prolonged economic slowdown, experts said Tuesday.
Still, they cautioned that the package, the first of its kind by the Park Geun-hye government that took office in late February, appears unlikely to dramatically increase home prices in a country where many people are unwilling to buy homes out of concern over a downward spiral amid anemic demand.
Prices of apartments in Seoul dropped 4.5 percent last year, the biggest decline since 1998 when South Korea was hit hard by the Asian financial crisis. The development was seen as a sign of a price bubble bursting in the real estate market after years of boom.
The average price of South Korean homes dipped 0.26 percent from a year earlier in January, posting an on-year drop for 10 consecutive months, according to government data.
The assessment came a day after the government announced that any household with a combined annual income of less than 60 million won (US$53,800) will be completely exempt from the acquisition tax when they purchase a house worth less than 600 million won and less than 85 square meters in size for the first time. The tax breaks will be available until the end of the year.
Real Estate 114, a real estate information provider affiliated with South Korea's Mirae Asset Financial Group Co., said more than 5.454 million apartments across the country are subject to tax breaks.
The government has also decided to cut the number of new public housing units from the current 70,000 per year to 20,000, and to limit the size of all new public housing units to below 60 square meters as it seeks to curb the apparent oversupply of homes.
The Park administration apparently took its cue from the previous government whose temporary tax cuts for those who buy homes boosted home sales.
The previous government introduced temporary tax cuts between September and December to try to stimulate the market. A total of 108,482 homes changed hands in December, up 50.6 percent from a month earlier, according to separate government data.
In a meeting with reporters Tuesday, Suh Seung-hwan, minister of land, infrastructure and transport, expressed hope that home transactions will rebound to the levels seen in previous years and that home prices would neither nosedive nor dip.
"People could 'feel the warmth' in the housing market in the second half or by the end of the year if the measures are successfully carried out," he said.
The government also said it will double the total amount of its mortgage fund from 2.5 trillion won to 5 trillion won to offer mortgages to more people. The annual interest rate on government mortgage loans will also be lowered from the current 3.8 percent to between 3.3-3.5 percent.
The move prompted potential home buyers to explore possibilities to buy new homes.
A 37-year-old office worker, who lives in a rental, said he plans to move to a city near Seoul by getting loans worth up to 180 million won from the government mortgage fund meant for first-time homeowners. He asked not to be named, citing privacy.
South Korea has a unique home rental system called jeonse, under which a tenant pays a large lump-sum deposit to lease a home instead of paying monthly rent. Landlords return the key money without interest when tenants move out at the end of the tenancy agreement that usually lasts two years.
The latest measures also prompted local construction firms to strengthen marketing campaigns to sell off unsold apartments that weighed on their profits.
More than 73,000 new homes remained unsold in South Korea as of the end of February, according to the Ministry of Land, Infrastructure and Transport.
The government said Monday that anyone who purchases a new or unsold housing unit of less than 900 million won will be completely exempt from property sales taxes for five years following the purchase.
The government's tax breaks changed the attitude of potential home buyers in Dongtan, a city located some 40 kilometers south of Seoul, according to an official involved in a project to sell rights to live apartments to be built in the city.
In South Korea, builders complete the construction of apartments two to three years after they sell the rights to live in those apartments.
While the government measures are unlikely to boost prices, experts said they are still expected to end up disposing of piles of unsold homes as they address the chronic shortage of demand.
"A revitalization of transactions could dispose of piles of unsold homes and stabilize the market, though home prices are unlikely to rise," said Park Won-gap, a senior official handling real estate business at South Korea's top lender Kookmin Bank.
Meanwhile, the Korea Research Institute for Human Settlements, a think tank affiliated with the prime minister's office, said that the government's measures could help boost nationwide home transactions by 15 percent per year, and raise home prices by 2 percent per year.
<All rights reserved by Yonhap News Agency>