'Blatant Targeting' Controversy Over Reverse Discrimination Against Luxury Apartments

[Asia Economy Reporter Yoo In-ho] The government’s artificial increase of the official prices of high-end apartments priced over 900 million KRW this year is sparking controversy over tax fairness compared to mid- to low-priced housing.

By applying significantly higher realization rates only to high-end housing, the official price hikes have far exceeded the actual market price increases. Since most high-end apartments are concentrated in the Gangnam area, there are criticisms that this move is aimed at winning votes ahead of next month’s general election.

◆ Gangnam area sees multiple places with official prices rising over 40% = According to the Ministry of Land, Infrastructure and Transport on the 19th, the nationwide official price of apartment complexes as of January 1 this year rose by 5.99%, while Seoul’s increase rate was more than double at 14.75%.

In particular, the official price increase rate in Seoul’s Gangnam area reached unprecedented levels. Gangnam-gu rose 25.57%, Seocho-gu 22.57%, and Songpa-gu 18.45%, the highest among the 25 autonomous districts.

Some individual complexes saw official prices rise by more than 40%. According to simulations by the Ministry of Land and Woo Byung-tak, head of the Tax Team at Shinhan Bank’s Real Estate Investment Advisory Center, the official price of Raemian Daechi Palace 84.99㎡ (exclusive area) in Daechi-dong, Gangnam-gu, Seoul, rose 40.8% this year to 2.118 billion KRW compared to last year.

The combined holding tax burden of property tax and comprehensive real estate tax increases by 46%, from 6.953 million KRW last year to 10.18 million KRW this year. This is due to the progressive tax structure where tax rates increase with the amount. Similarly, the official price of Acro River Park 84.95㎡ in Banpo-dong, Seocho-gu, rose 35.2% to 2.574 billion KRW this year, with holding tax jumping 47% from 11.23 million KRW to 16.525 million KRW.

On the other hand, Gwanak Dream Town 84.96㎡ in Bongcheon-dong, Gwanak-gu, with actual transaction prices around 700 million KRW, saw only a 6.31% increase in official price. The holding tax increase rate was also 16.82%, clearly contrasting with the high-end housing in Gangnam.

If the Comprehensive Real Estate Tax Act amendment currently pending in the National Assembly passes, the tax burden on high-end housing will increase further. The top comprehensive real estate tax rate will rise from 3.2% to 4.0%, and the tax burden cap for owners of two houses in regulated areas will be raised from 200% to 300%.

◆ Government arbitrarily raises prices only for high-end housing without basis = The market views this year’s official price increase by the Ministry of Land as a deliberate artificial adjustment. The government applied differentiated realization rates by price range to raise the official prices of high-end housing undervalued relative to market prices, resulting in a steep rise in official prices particularly in Gangnam.

In fact, the nationwide average realization rate of official apartment prices this year rose only 0.9 percentage points from last year to 69%. However, it was raised to 70% for 900 million to 1.5 billion KRW, 75% for 1.5 billion to 3 billion KRW, and 80% for over 3 billion KRW. As a result, the official price change rate for housing under 900 million KRW was only 1.97%, while for housing over 900 million KRW it soared 21.15%. The increase rate for official prices over 3 billion KRW reached 27.39%.

The Ministry of Land only explains that this follows a mid- to long-term roadmap without providing specific grounds. They say they “realized” high-end housing prices “first.”

Regarding this, Park Sun-ho, 1st Vice Minister of the Ministry of Land, said on a radio broadcast that day, “The official prices of high-end apartment complexes rose significantly because the price increase last year was large, and the official price system was inadequately operated so that the realization rate of low-priced housing was actually higher than that of high-end housing, which we corrected.”

The market price, which serves as the standard for applying realization rates, is also not disclosed. The market price used by the Ministry of Land is the “appropriate price” calculated by the Korea Appraisal Board by synthesizing actual transaction prices, private institutions’ real estate price trends, and appraisal precedents. This structure inevitably involves subjective judgment.

Ham Young-jin, head of the Zigbang Big Data Lab, said, “Owners of apartments over 900 million KRW will feel the tax burden including quasi-taxes, and objections to official prices by owners may increase significantly.”

Experts point out that there may be reverse discrimination issues between high-end and mid- to low-priced apartments. Artificially differentiating price ranges and applying different realization rates violates tax fairness. Official prices serve as the basis not only for holding taxes but also for about 60 administrative purposes including health insurance premiums. If official prices rise, the burden of these 60-plus taxes will increase.

An industry expert said, “If the government wants to realize the official prices of high-end apartments, it should disclose the surveyed market prices accurately. Without disclosing market prices, it cannot escape such controversies.”

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