Chapter

Interest Rate, Inflation, and Housing Price

Edited by Dongchul Cho

in Monetary Policy with Very Low Inflation in the Pacific Rim

Published by University of Chicago Press

Published in print October 2006 | ISBN: 9780226378978
Published online February 2013 | e-ISBN: 9780226379012 | DOI: http://dx.doi.org/10.7208/chicago/9780226379012.003.0010
Interest Rate, Inflation, and Housing Price

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This chapter describes the impact of a Korean housing institution mechanism known as chonsei. Monetary policy has a strong effect on the chonsei/housing price ratio, and the resulting implicit wealth transfers. Chonsei is a unique system in the Korean housing market. Given the popularity of this system, it is obvious that a substantial amount of assets are held in the form of chonsei deposit in Korea. There is a huge discrepancy in the sales price relative to the chonsei price due to the expectation of capital gain. The general price inflation can be seen as a primary factor for the sales price that remains substantially higher than the chonsei price all the time. The effective tax rate on real estate has been rising from a very low level. The magnitude of the impact by tax appears to be small relative to the impacts by interest rates and inflation rates.

Keywords: chonsei; Korea; monetary policy; housing price; assets; sales price; price inflation; tax rate; interest rates

Chapter.  11049 words.  Illustrated.

Subjects: Business and Management

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