The government has begun to prepare additional comprehensive measures to revitalize the construction industry. The Ministry of Economy and Finance, the Ministry of Land, Infrastructure and Transport, and other concerned ministries plan to review what support the government can provide to stimulate the construction industry, which is evaluated as the worst since the IMF foreign exchange crisis, and announce this as a comprehensive plan. Discussions are underway regarding the temporary reduction of the raw acquisition tax for housing construction companies.
According to the construction industry and the government on the 21st, the Ministry of Economy and Finance, the Ministry of Land, Infrastructure and Transport, and other concerned ministries have started discussions on additional support measures for the recovery of the construction industry. Previously, these ministries announced the "Measures to Enhance the Vitality of the Construction Industry by Supplementing Construction Investment through Realization of Construction Costs" on Dec. 23 last year and the "Regional Construction Market Supplementation Measures" on Feb. 19 this year. However, the government believes that additional measures are needed as the construction industry continues to be in a slump.
A construction industry official noted, "Although the government has presented several measures, the construction market has not improved, so we are gathering opinions to prepare additional measures." The official added, "We are preparing for follow-up measures to boost the economy after the new government is launched." A government official also said, "The economy is not doing well, and we are examining various options."
One of the measures currently being discussed is the temporary reduction of the raw acquisition tax for dwellings. The raw acquisition tax is a local government tax levied when real estate is initially acquired. Under the current local tax law, housing construction companies must pay 3.16% (including The Special Tax for Rural Development and local education tax) at the time of acquisition when they construct an apartment for sale. Subsequently, the buyer must pay another acquisition tax of 1.3% to 3.5% after purchasing the dwelling. Due to this, claims of double taxation on newly built housing are being raised within the industry. The raw acquisition tax for dwellings paid in 2023 is estimated to be 1.85 trillion won.
Lee Dae-yeol, head of the policy department at the Korea Housing Association, stated, "The raw acquisition tax is reflected in the cost when construction companies determine the sale price, increasing the average sale price by about 2%." He added, "If reduction is implemented, the decrease in sale price will relieve the burden on construction companies, and the benefits will also flow to the buyers."
Earlier in February, 10 individuals, including Choi Su-jin of the People Power Party, proposed an amendment to the "Local Tax Special Provisions Restriction Act" that would reduce acquisition tax for businesses that acquire dwellings for sale and sell them within one year from the inspection date, until Dec. 31, 2028. An official from Choi Su-jin's office stated, "There are many opinions that it is inappropriate to impose taxes on construction companies that acquire dwellings temporarily for the purpose of sale, not for retention, as well as the issue of double taxation."
The reason the government is reconsidering support measures despite announcing measures to stimulate the construction market at the end of last year and in the first quarter of this year is that the contraction of the construction market is so severe that it cannot be ignored, significantly impacting not only the construction industry but also the overall domestic economy.
According to the Bank of Korea, the construction performance in the first quarter of this year has plummeted by 20.7% compared to the same period last year, the largest drop since the third quarter of 1998 (-24.2%), soon after the IMF foreign exchange crisis. The construction contracts (current) have also decreased by 7.7%, and the number of employed people in the construction industry has decreased by 185,000 (as of the end of March). The Bank of Korea analyzed that the contraction of the construction market has pulled down the domestic economic growth rate (GDP) by 0.4 percentage points.