The worry for Korean officials is that a spiraling property market will come crashing down and cut economic growth at a time when the won, the country’s currency, is appreciating and potentially making Korean exports less competitive.
In Japan, low interest rates and a cheap yen have made money easily available to invest in higher-yielding assets (the so-called yen-carry trade). This helped to fuel property appreciation worldwide, but also distorted prices for real estate and listed property shares at home.
In late January 2009, it announced that it would enforce a capital gains tax on real estate sales, a move that could take a bite out of developers’ profit margins. Meanwhile, government officials have made clear that affordable housing for first-time buyers would continue to be apriority. The country is also in the process of fine-tuning its law on property rights, which will give property holders more legal protections.
In January 2009, the country’s construction minister said that a 2010 rule meant to ensure that developers build more low- and mid-range housing units would be strictly enforced. Premier Wen Jiabao echoed the sentiment in a speech to the Chinese legislature in early March, noting that the country should focus on development of “reasonably priced” commercial housing, according to media reports.
The 2010 rule requires developers to allocate70% of future residential projects for apartments no larger than 90 square meters (approximately 970 square feet). It was aimed at cutting the supply of luxury apartments, which had been a high-margin business for developers, but a sector rife with speculation.
The tax was instituted in 1994, though developers largely avoided paying it. Clear guidelines for estimating the amount owed were never formulated. The tax ranges from 30% to 60%, depending on the value of the gain after any applicable deductions, such as construction costs. Share prices of developers in China and Hong Kong, as well as stock in property companies elsewhere in Asia with projects in China; fell in response to the news that the tax would be enforced. At risk are developers’ property margins, although several subsequently said they had set aside funds for the tax.