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Monday, July 25, 2005

Kim on Anti-Speculation Laws and Their Impact on Korean Real Estate and Financial Markets

Jasper Kim (Graduate School of International Studies, Ewha University, Seol, South Korea) has published Anti-Speculation Laws and Their Impact on the Real Estate and Financial Markets: The Korean Case, 18 Colum. J. Asian L. 47 (2004).  Here is the Conclusion:

The Anti-Speculation Laws may seemingly represent a good faith effort on behalf of the Korean government to curb real estate investment speculation. However, notable risks and increased tax burdens exist (such tax burdens applying to nearly every type of investor, not only to short-term property investors, but also to long-term property investors as well) which could outweigh the benefits of the Anti-Speculation Laws' objective of curbing perceived short-term property investment speculation.

As an alternative, the government may be better served to provide more specific legislation (i.e., which increases property and capital gains taxes only for "short-term" property investments) and in all other cases, reduce (not increase), property and capital gains tax obligations to serve as an investor incentive. By doing this, tax burdens are minimized and property investment incentives are reallocated per the government's objectives. In conclusion, the combination of the risks noted herein and the increased tax burden not only sends a worrisome policy message that (i) the government and not market forces play the dominant role in setting real estate prices; (ii) the broad measures that apply to most property owners may be overly broad, as it applies not just to short-term investors involved in possible speculative investment activity, but to the majority of property investors, both in the short and long term; and (iii) such legislation could scare investors out of the Korean markets, which could jeopardize Korea's economic sustainability as well as the stability of the international financial markets.

http://taxprof.typepad.com/taxprof_blog/2005/07/kim_on_antispec.html

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