Excessive Real Estate Transaction Costs Should Be Reduced

The cost of buying and selling real estate has become excessively high. The costs borne in real estate transactions include capital gains tax, acquisition and registration tax, and brokerage commissions. As these costs have risen sharply in recent years, the public’s housing costs have increased and the freedom to move has been severely restricted.

The capital gains tax rate is excessively high, reaching as much as 82.5%. As failures in real estate policy have piled up, the government, growing increasingly desperate, has introduced tax hikes aimed at blocking everything across the board, making the problem even worse. Real estate owners now face the prospect that, if they sell a home at the wrong time, a substantial portion of their gains will be taken by the government in capital gains tax.

As the burden of selling real estate has grown, a harmful side effect has emerged: the number of properties on the market has actually declined. The heavier capital gains tax burden has intensified the lock-in effect. Going forward, the market’s price function may become even more distorted.

Repeated revisions to the real estate tax system have made tax calculations more complicated. Uncertainty in real estate transactions has increased further. The Moon Jae-in administration has even lost the market’s trust by pushing through unreasonable revisions that nullified rules it had established earlier in its own term. Tax accountants themselves have been left confused by these excessive tax changes. The tax burden is a problem, but so too is the fact that transactions themselves are being discouraged by unreasonable tax policy.

The burden of acquisition and registration tax is also excessively high, reaching as much as 13.4%. Additional levies, including the Special Rural Development Tax and the Local Education Tax, are imposed on the acquisition tax. Higher acquisition tax rates have therefore increased the burden of surtaxes as well. In this way, higher transaction-related taxes will dampen real estate sales themselves and further aggravate instability in supply and demand.

Brokerage commissions paid in transactions are also high, at up to 0.9%. As market prices have continued to rise, the commissions that buyers, sellers, landlords, and tenants must pay when buying, selling, or leasing the same property have gradually increased as well. In effect, the burden resulting from the government’s policy failure is being passed on to consumers.

In addition, as various regulations on sales and leases have increased, tax-related compliance costs have risen. Moreover, with tighter regulations on jeonse and monthly rent contracts, the burden of insurance premiums related to lease agreements is also expected to increase significantly. One way or another, the costs associated with real estate transactions have risen substantially.

The increase in real estate transaction costs ultimately falls on the parties to the transaction. The government says it is increasing the burden on speculators, but in reality all such costs are passed on to the public. Property owners and non-owners alike, as well as landlords and tenants, are all victims. Because the real estate tax system has been captured by political logic and made incompatible with reality, the entire public has been made to suffer.

The government should reconsider why the 25 real estate measures it has introduced so far have had the side effects of increasing the public’s real estate transaction costs while raising only government tax revenues. If the direction of policy is wrong, it needs to be corrected. Though late, it is still right to reduce real estate transaction costs now so that the market’s price function can operate normally.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: 과도해진 부동산 거래비용, 줄이는 것이 옳다

Author: Sung-no Choi

Date: 2021-06-14

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=23809