The Asianist

From the Korea Times:

The government plans to raise taxes on capital gains from home transactions and restrict mortgage loans...

On the demand side, the government will raise the capital gains tax on owners of two houses to 50 percent from the current 9 to 36 percent.

Property holdings tax on apartments and unused land will be raised to 1 percent by 2019 from the current 0.15 percent.

The assessment base of the comprehensive real estate tax, a national tax designed to crack down on real estate speculation, will be raised to 100 percent of the standard price gradually by 2009 from the current 50 percent.

And owners of properties worth more than 600 million won will be subject to a comprehensive real estate tax beginning next year. Currently, the tax targets people with homes worth more than 900 million won.

To offset significant increases in property holding and capital gains taxes, it also decided to lower taxes on real estate transactions between individuals by 1 percentage point to 3.5 percent from the current 2.5 percent.

But the government plans to save people with low-priced homes from heavier capital gains taxes. Under the plan, owners of homes worth less than 100 million won in the capital region and six metropolitan cities will not be subject to the new taxation.

In provincial areas, those with homes worth less than 300 million won will be excluded from the new taxation plan.

The response from those with any modicum of knowledge in economics has been predictable:

A taxation-oriented new real estate policy, scheduled to be unveiled today, will throw cold water on an economic recovery, according to international credit rating agencies.

They said that the property boom is not serious enough for the government to employ macroeconomic policies.

On Monday, Fitch Ratings said in a report that the government has been overreacting to the real estate market, making its earlier economic stimulus measures futile.

"There is no evidence of a significant bubble in Korea’s residential real estate market beyond certain wealthy areas around southern Seoul," David Marshal said in the report. "The government has, in its economic policies toward the property market, been excessively antipathetic to any price rises."

"In threatening action to curb the market, the government may have undermined its own efforts to boost the stagnant domestic economy by maintaining low interest rates and raising consumer confidence," he added.

Standard & Poor’s said that although the real estate market was showing signs of overheating, a real estate bubble was limited to a few areas in southern Seoul.

It added that regardless of what measures the government takes, it would be hard to curb real estate speculation in specific regions without side effects.

"The government’s measures to curb property speculation continue to affect the construction sector," Morgan Stanley analyst Andy Xie said.

"The measures to double the property holding tax are likely to put construction investment in the doldrums," he added.

So why is the South Korean government doing this despite the obvious negative economic consequences?

The answer is quite simple: the leftist Roh government is again engaging in a symbolic "populist" policy (read demagoguery). The idea is to attack the rich and those with income property in an effort to be seen as if it is "doing something" about a non-existent problem that is still propagated as a significant issue.

This has been the modus operandi of the disastrous Roh government, and shows no sign of abating.