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The ruling and opposition parties at the National Assembly finally pounded out an agreement 80 days after the bill was proposed.
The ruling Saenuri Party considered the tax cut, which ended Dec. 31, crucial for the working class. It also believed the measure would help boost the sluggish housing market.
Suh Seung-hwan, new minister of land, transport and maritime affairs, is also a proponent of the extension.
Those who already paid the whole tax after Jan. 1 will be eligible for refunds when the bill takes effect next month. About 7 million households are expected to benefit from extension of the tax cut, according to a property market researcher.
The acquisition tax cut was introduced last Sept. 10 to revive the moribund real estate market, and it was considered the strongest action to stimulate the market under the former Lee Myung-bak government.
The Lee administration halved the acquisition tax from 4 percent to 2 percent for the last four months of 2012 as a last-ditch effort by the former government to boost a housing market that had remained sluggish for most of Lee’s term. Last May, the government announced property revitalization measures, but they failed to budge the market.
Under the 50 percent cut for properties purchased, the acquisition tax was 1 percent for property under 900 million won ($828,000) and 2 percent for sales of 900 million won or more. Since Jan. 1, the rates returned to 2 percent and 4 percent.
The measure had an immediate impact on the market. There were 66,411 transactions nationwide in October, up 67 percent from a month earlier. Seoul metropolitan areas saw a 75 percent spike in transactions during the same period.
Market analysts said transactions started picking up after Sept. 24, when the government’s tax break measure for home buyers took effect.
After expiration of the tax cut, the market situation worsened.
In February, the number of transactions stood at 47,000, marking the lowest February total since 2006.
Prices of apartments in southern Seoul also fell in March, after picking up slightly in January in anticipation of the Park administration’s property policy.
Realtors have been desperate to reinstate the tax cut, saying the market had just started to pick up in response to the government stimulus.
Experts have also been arguing that it is important to make homes more affordable for potential buyers in order to revitalize the moribund market.
Korea Research Institute for Human Settlements said in a recent report that the government needs to take a look at the recovery of the U.S. housing market after the U.S. goverment cut interest rates of mortgages for struggling households.
According to the report, the U.S. housing market started recovering in the fourth quarter of last year, with rising prices and increasing construction of new houses.
“The key to reviving the flat market is to make consistent efforts to help reduce financial burdens on potential home buyers,” said Jeon Seong-je, author of the report. “The government could consider lowering the acquisition tax rate further, but the tax cut shouldn’t be a temporary measure.”
Industry insiders expressed mixed feelings about news of the tax cut extension.
Choi Se-hoon, a manager at a realtor in Banpo-dong, southern Seoul, said, “I welcome the news, but it is only a temporary measure, being effective until June.”
“I’m not sure if the short-period tax cut will help boost the market in the long run.”
The passage of the tax cut extension bill is expected to affect formulation of a fresh policy package by the land ministry scheduled to be announced early next month.
According to sources, the new package will provide additional tax benefits and homes for those who rent and lease.
Suh has talked about increasing tax benefits other than the acquisition tax cut.
By Song Su-hyun [ssh@joongang.co.kr]
