"Loan Restrictions Make Buying a House Tougher... Taxes to Watch in the Second Half"

Real Estate Market at Zero Hour...制度 Changes Starting This Year

[Asia Economy Reporter Yuri Kim] # From this month, the long-term holding special deduction benefit will be reduced when selling houses priced over 900 million KRW. Until now, owners of houses exceeding 900 million KRW who qualify as one household one house received up to 80% long-term holding special deduction on capital gains exceeding 900 million KRW regardless of residence status or duration. However, going forward, the condition of 'residing for more than 2 years' must be met. Houses not actually lived in will only receive a deduction of 2% per year, up to a maximum of 30%, no matter how long they are held.

With the government's December 16th policy announcement last year causing rapid changes in the market situation, the real estate market in 2020 starts at a standstill. Both buyers and sellers are adopting a 'wait and see' attitude, putting a brake on price increases. The market is currently facing conflicting forecasts of a 'brief effect' and a 'general decline.'

Because of this, the specific details of government real estate measures such as taxation, loans, and subscription will complexly increase market volatility this year. Especially, restrictions on purchasing new houses after jeonse (lease deposit) loans, shortening of actual transaction reporting periods, expansion of submission requirements for funding plans, and strengthening of transaction verification are variables that actual demanders planning to buy homes this year should closely watch.

◆Loan restrictions likely to reduce house purchasing power= At the beginning of the year, restrictions on purchasing new houses after taking out jeonse loans will be implemented. If a person who has taken a jeonse loan purchases a house over 900 million KRW or owns two or more houses, the jeonse loan will be recalled. Owners of one house over 900 million KRW will no longer be able to receive guarantees from public jeonse guarantees or Seoul Guarantee Insurance.

From February 21, the reporting period for real estate actual transactions will be shortened from 60 days to 30 days. If a contract is invalidated or canceled, the report must be submitted within 30 days from the date the cancellation is confirmed. If a false report is made without an actual contract, a new fine of up to 30 million KRW will be imposed. From February, brokerage fees must be negotiated at the contract drafting stage. The real estate agent's confirmation and explanation document provided at contract signing will include brokerage fees agreed upon by the parties. Currently, only the maximum brokerage fee rate is set, and the exact fee is determined at contract signing.

From March, the scope of submission for funding plans when purchasing houses will expand. Until now, only houses over 300 million KRW in speculative overheated districts were subject, but now houses over 300 million KRW in regulated areas and houses over 600 million KRW in non-regulated areas must also submit funding plans. Especially for actual transaction reports of houses over 900 million KRW in speculative overheated districts, detailed supporting documents such as income certificates, deposit balances, and lease contracts must be submitted along with the funding plan. From March, restrictions on subscription and re-winning will be strengthened for illegal resale.

◆Second quarter turning point with price ceiling system and capital gains tax deferral= In April, the grace period for the private land price ceiling system will end. The price ceiling system will apply to complexes applying for resident recruitment announcements after April 29.

From May, rental income from houses under 20 million KRW per year must also be reported for income tax. This is because income tax will be levied from the 2019 tax year. Until now, if annual income from monthly rent or jeonse was under 20 million KRW, it was tax-exempt. However, rental income under 20 million KRW will be taxed from the 2019 tax year, so reporting to tax authorities is required from 2020. However, those with income under 20 million KRW can choose between separate taxation or comprehensive taxation.

The biggest variable in the market in the first half of the year is the temporary exclusion of capital gains tax heavy taxation on multi-homeowners in regulated areas, which ends at the end of June. Until then, multi-homeowners selling houses held for over 10 years will not be subject to heavy taxation and can receive long-term holding special deductions. Multi-homeowners facing increased holding tax burdens should carefully consider disposing of surplus houses within the deadline.

◆Soaring taxes as a variable in the second half= The urban park sunset system introduced in 2000 will be implemented for the first time in July. This system removes urban park designation if a park has not been developed for over 20 years after being designated as an urban park in urban planning facilities. From August, the revised Real Estate Agent Act punishing agents posting false listings is expected to be enforced.

From this year, dividend income from public REITs and real estate funds will be taxed at a lower rate separated from other financial income. Inheritance and gift taxes on detached houses and small buildings will also increase significantly as the tax base changes from standard market price to appraisal price.

Adjustments to comprehensive real estate tax rates will stir the market again in the second half. The tax rate on owners of houses with official prices over 900 million KRW will increase by 0.1 to 0.8 percentage points. The 'official price realization rate' will be adjusted upward according to house prices, so with rising official prices, the increase in comprehensive real estate tax is expected to be even greater.

This content was produced with the assistance of AI translation services.