The Impact of Property Tax Increase on the Banking Sector in Korea with a Focus on the Value of Collateral

Kim, Myungkyoo (2007) The Impact of Property Tax Increase on the Banking Sector in Korea with a Focus on the Value of Collateral. [Dissertation (University of Nottingham only)] (Unpublished)

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Banks enhance the efficiency of economy by intermediating between the borrowers who do not have money but business plans and lenders who have money surplus. However, in the process of intermediation the banks are exposed to diverse risks such as credit risk, liquidity risk, and so on. Therefore it is the core of banking business management how to manage such risks.

Recently, the Korean government strengthens the tax on the property in order to stabilize the residential real estate market which has been in a boom since 2000. Considering that the banks in Korea have expanded their exposure to the residential real estate sector rapidly during the boom period, the tax change can be a potential threat to the banking business in Korea. In fact, we can see many banking crises which occurred right after the asset boom. Japanese financial crisis during the 1990s, Scandinavian countries' banking crisis in 1990s, the saving and loans crisis in U.S. in 1980s and etc are good examples.

The impact of tax increase on the price of residential real estate in Korea is estimated by using the GMM (Generalized method of moment). The result shows that the tax increase by 1%p will lower the price of residential real estate by only 0.03%p and 0.15%p even though we include the recent increase of interest rate by 4%p. Considering that the LTV has been controlled below 60% in Korea since 2002, the current tax increase on property does not seem to damage the banking sector in Korea seriously.

Item Type: Dissertation (University of Nottingham only)
Keywords: bank, Korea, real estate
Depositing User: EP, Services
Date Deposited: 21 Nov 2007
Last Modified: 31 Jan 2018 11:33

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