South Korea: Showing good form

South Korea, strengthened by the return of its Europe-based players, showed good form in the warm-up World Cup matches, sending confidence through the country and signalling it is in good shape for the tournament. We beat Bosnia-Herzegovina 2-0 recently. And the South Korean property market is also a sector brimming with confidence.

Since the Asian financial crisis of 1997/98, the South Korean property market has boomed as property became one of the safest places for high-income investors to place their money. But there are concerns that the dramatic rises seen in the past eight years could lead to a bubble in South Korea’s residential real estate market.

In 2002 house prices rose 16.4% and apartment prices increased by 23%. Despite moves by the government in recent years to curb these rises, prices still rose by 3.2% in the first half of last year, with some areas recording growth for 2005 of more than 30%.

As interest rates remained low over the past decade and the stock markets did not offer security, investors poured money into property.

In 2005 the South Korean government unveiled measures focussed on raising tax rates on people who own more than one property. What it proposes to do is impose a uniform 50% Capital Gains Tax on owners of more than one home from 2007.

Among other plans to ease pressure on the market are targets to develop public land into residential areas in Seoul and its outskirts over the next five years and to provide people in the low-income bracket with loans at low interest rates to increase mortgage lending to them.

As well as huge rises in property taxes, plans are also afoot to impose further taxes on gains made from housing construction and land development. Developers have long been secretive about profits but they could now face tougher measures by the government in monitoring the sector.

Despite high activity in the property sector, inflation remains low, partly due to low domestic demand. While economists may want interest rate rises to curb the market it is a tricky task to link this to the rest of the economy.

The property market looks like a safe bet for investors who seen great gains in their investments since the financial crisis of the mid-1990s.

Young Mi Yoon is spokeswoman for GE Money (Korea)