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Hater Depot
Joined: 29 Mar 2005
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 Posted: Fri Sep 02, 2005 4:47 pm Post subject: Why are Koreans so worried about speculators? |
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It seems every time I open a Korean newspaper, I'm reading about some measure the government is taking against real-estate speculators, or that Koreans generally are worried about them. Why is this such a big deal for them? These people are just making investments in a capitalist system and trying to make moeny, and they're not breaking any laws. Is there some history here I don't know about?
http://times.hankooki.com/lpage/biz/200508/kt2005083119250311900.htm |
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jinglejangle
Joined: 19 Feb 2005
Location: Far far far away.
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| Posted: Fri Sep 02, 2005 5:24 pm Post subject: |
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It could be a number of things I guess. Might be something to do with fear of overvaluing the markets.
Korean real-estate problems I know of in the past have included some pretty hefty scam jobs.
Apparently, if you own a high-rise apt building, you used to be able to tear it down and build a newer one every couple of years, which either drove your leaseholders/subowners out for awhile to wait for an apt in the new building or else made them forfeit entirely. I'm extremely unclear on the whole thing.
I think some legislation has been passed to control the problems, but I believe it is still a problem.
Another scam I read about that can be a problem is unscrupulous individuals buying an old building, and then opening their own real-estate office to rent out the apts on the "key-money" plan. Once they have all the apts rented out they take the key money and disappear, so when it comes time for the tenants to collect their deposits they find the building sold to someone else and the originals long gone, with their money.
The book which mentioned this scam recommended checking around to make sure real-estate agents had been around in the neighborhood for a few years before you considered going through them.
They also recommended being leery of agents trying to rent you apts in the same building as their office. |
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Gord
Joined: 25 Feb 2003
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| Posted: Fri Sep 02, 2005 6:21 pm Post subject: Re: Why are Koreans so worried about speculators? |
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| Hater Depot wrote: |
| These people are just making investments in a capitalist system and trying to make moeny, and they're not breaking any laws. |
Real estate speculation is against the law in Korea. |
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Hater Depot
Joined: 29 Mar 2005
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| Posted: Fri Sep 02, 2005 6:24 pm Post subject: |
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| How could that be true? You can't buy a property in anticipation of prices going up in six or twelve months? Why wouldn't speculation in other things be outlawed--the stock market, for instance? |
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Gord
Joined: 25 Feb 2003
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| Posted: Fri Sep 02, 2005 7:11 pm Post subject: |
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| Hater Depot wrote: |
| How could that be true? You can't buy a property in anticipation of prices going up in six or twelve months? Why wouldn't speculation in other things be outlawed--the stock market, for instance? |
Because historically the government has kept a very tight control on development which has limited the amount of land available. As supply is kept below demand, the price gets pushed up. When people with money begin buying double or higher what was anticipated by the government, the inflationary pressures on prices jumps exceptionally fast. Not only does it generate them huge profits once they sell, but it hurts the economy as a whole as people cut back on other expendatures to try and save for the property purchase at the inflated price.
In places like Canada when speculation is done, the property owners generally invest into infastructure to help build value. New roads, power lines, water, surveying, renovation, controlled business development, etc. Most people simply do not buy something with the plan to do nothing with it and magically double their money every six months.
If the Korean real estate market was much more fluid with more property available then speculation would be far less lucrative for people who buy and sit. |
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Hater Depot
Joined: 29 Mar 2005
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| Posted: Fri Sep 02, 2005 7:46 pm Post subject: |
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So how do they decide you're speculating? I buy a place... I sell it a few months later at a higher price. Maybe I lived there, maybe I didn't. Maybe I had plans for it, but problems came up and I needed the money, or maybe a partner quit. But I turn a profit on the apartment/parcel of land/whatever. Am I in trouble?
It seems like a great opportunity for a prosecutor or regulator to stick his nose in where it doesn't belong. |
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Bulsajo
Joined: 16 Jan 2003
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| Posted: Fri Sep 02, 2005 7:50 pm Post subject: |
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| Speculators are the ones who didn't pay off the right people. |
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Ya-ta Boy
Joined: 16 Jan 2003
Location: Established in 1994
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| Posted: Sat Sep 03, 2005 12:58 am Post subject: |
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| There is a certain amount of resentment against the rich here. Ill gotten gains, filthy lucre and all that, especially if the money came back during the Occupation. At a time when the economy is stumbling along and the young can't find good jobs, the feeling mounts that the rich should be investing in expanding business so job opportunities improve, not just fattening the bank account with inflated real estate holdings. There is also the keeping up with the Joneses factor. Since US has a real estate bubble of possibly dangerous proportions going, then the home team should also. |
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JongnoGuru
Joined: 25 May 2004
Location: peeing on your doorstep
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| Posted: Sat Sep 03, 2005 2:49 am Post subject: |
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| Hater Depot wrote: |
| So how do they decide you're speculating? I buy a place... I sell it a few months later at a higher price. Maybe I lived there, maybe I didn't. Maybe I had plans for it, but problems came up and I needed the money, or maybe a partner quit. But I turn a profit on the apartment/parcel of land/whatever. Am I in trouble? |
Generally, no. What the government does is make it hard to speculate successfully by levying higher & ever higher tax penalties on what they determine is big-time property speculation.
BTW, are you speaking figuratively? Does "I" mean Joe Kimchee or you, a foreigner? It is a distinction that can matter in real-world situations, even if not necessarily in the eyes of Korean law.
| Bulsajo wrote: |
| Speculators are the ones who didn't pay off the right people. |
...mmm yeah, but practically speaking, everyone in Korea "pays off" the right people. If you ever sell property in Korea for substantially more than you paid, just take a look around at all the mystified and astonished faces (everyone from realtors and tax specialists to tax officials themselves) when you mention that you're prepared and willing to pay just what the law says you owe. It's as though they've never heard of anyone paying their full and legal taxes, which might well be the case. |
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mindmetoo
Joined: 02 Feb 2004
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| Posted: Sat Sep 03, 2005 6:28 am Post subject: Re: Why are Koreans so worried about speculators? |
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| Hater Depot wrote: |
| These people are just making investments in a capitalist system and trying to make money, and they're not breaking any laws. Is there some history here I don't know about? |
Land speculation isn't the best use of capital and it's not really an investment in a capitalist system. It's part of something called the "casino economy". Building an apartment building is good. Making a profit by selling or renting the apartments to people who want to live in them is good. However, building an apartment to sell it to someone who merely wants to sell it for more to someone who thinks he can sell the whole building for more... that's not so good. Someone is eventually left holding the hot potato and goes bankrupt (and in Korea that eventually means having to fish a body out of the Han river).
So, if your entire real estate and construction industries heat up based not on demand but on speculation, you're in for a heap o' trouble down the line. Governments prefer not being left to pick up the pieces (via an FDIC or depositor insurance system). For example, after the S&L scandal, the US government had to form Resolution Trust, a company that had to sell off billions of land and property that was built based on speculation because of the S&L scandal.
Currency speculation is another nightmare for nations. You might recall the whole "Tobin Tax" debate a few years ago.
The history is probably the Japanese real estate bubble which led to some failures of major banks. The Korean government is trying not to let it happen here. |
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mindmetoo
Joined: 02 Feb 2004
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| Posted: Sat Sep 03, 2005 6:36 am Post subject: |
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| JongnoGuru wrote: |
| If you ever sell property in Korea for substantially more than you paid, just take a look around at all the mystified and astonished faces (everyone from realtors and tax specialists to tax officials themselves) when you mention that you're prepared and willing to pay just what the law says you owe. It's as though they've never heard of anyone paying their full and legal taxes, which might well be the case. |
I've said it before and I'll say it again, if Korea a) actually tried to collect the taxes it's legally entitled to collect b) posted a cop at every major intersection and got him to write a ticket for every traffic infraction he saw, the government coffers would over flow with money... they could end all human suffering as we know it. |
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Butterfly
Joined: 02 Mar 2003
Location: Kuwait
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| Posted: Sun Sep 04, 2005 5:19 pm Post subject: |
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Well speculators push the prices of real estate up and thus make housing unaffordable for people trying to get on the ladder, young couples and all, having a very damaging effect on the birth rate ultimately, and this country already has the lowest birth rate in the world. I'd say that has a lot to do with it, Korea is already facing a social security crisis, it cannot afford for the birth rate to get any worse.
Property speculation is selfishness in my view, and needs to be regulated. Real estate is meant to be for homes and businesses, not investments. |
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kimchikowboy
Joined: 24 Jan 2003
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| Posted: Sun Sep 04, 2005 7:23 pm Post subject: |
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| Quote: |
| Property speculation is selfishness in my view, and needs to be regulated. Real estate is meant to be for homes and businesses, not investments. |
Actually, real estate is traditionally how Koreans have invested money. You don't have a strong tradition of stocks, etc. here.
Just out of curiousity, do those commenting here actually know how much apartments here cost? One of the hobbies my wife and I have is visiting the model houses for new places, so I do know the cost, at least here in Daegu. How much do you guys think a three bedroom (33 pyong) place goes for? It might surprise you, and it is about 35-50% more than when we were looking at places a year and a half ago.
Also, much of the speculation is for new places. You buy them three years before you can actually move in. The idea is that you sell them before you have to make all of the payments, and still make a profit for yourself. Right now, because of new laws, you have to keep a place at least a year before you sell (still two years or so before it is completed).
And yes, other posters are right about not declaring correct amounts for the purpose of taxes when you sell an older place. But from what I've heard, the government is also starting to clamp down on that as well. And I don't think tax evasion is a uniquely Korean concept. |
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JongnoGuru
Joined: 25 May 2004
Location: peeing on your doorstep
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| Posted: Sun Sep 04, 2005 8:46 pm Post subject: |
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| kimchikowboy wrote: |
| And yes, other posters are right about not declaring correct amounts for the purpose of taxes when you sell an older place. But from what I've heard, the government is also starting to clamp down on that as well. And I don't think tax evasion is a uniquely Korean concept. |
The government has been 'starting to clamp down since' late Chosun, I reckon. On false reporting of property sale prices, it's been 'starting to clamp down' since I got off the boat. These anti-corruption, water-tight tax enforcement campaigns that every administration hauls out are as old as I am, and the more I see of the latest attempt, the more old soju in a new bottle it tastes. The application of new rules will be patchy and inconsistent.
It isn't tax evasion per se that makes Koreans or Korea unique -- it's the near-complete absence of honest taxpayers. At least from my experience. |
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