[June 17 Real Estate Measures] Targeting 'Blind Spots' in Corporations... Cutting Off Funding and Significantly Increasing Tax Burden

Government to Announce 'Housing Market Stabilization Management Plan' on 17th
Comprehensive Pressure on Gap Investment Corporations to Minimize Profits

Minister of Land, Infrastructure and Transport Kim Hyun-mi is making an announcement regarding real estate regulation measures at the Government Seoul Office in Jongno-gu, Seoul on the 17th. Photo by Kang Jin-hyung aymsdream@

[Sejong=Asia Economy Reporter Kim Hyunjung] The government has decided to significantly raise the relatively low tax rates previously applied to corporations through the 'June 17 Real Estate Measures' and to outright ban mortgage loans for housing purchase and rental businesses. This is an all-out pressure to cut off funding sources and increase tax burdens. The intention is to precisely target the 'blind spots' where it was easier to secure financing and legally lower tax rates compared to individual real estate transactions, aiming to completely eliminate speculative demand.

On the 17th, the government announced that the comprehensive real estate holding tax (종부세) rate increase and the abolition of 종부세 deductions for corporate-owned housing will be applied starting from the 2021 종부세 imposition, and that mortgage loans will be banned for housing purchase and rental businesses in all regions. As a result, the cost of financing will increase and the tax burden on holding will rise, thereby suppressing gap investment demand by minimizing capital gains.

First, the 종부세 rate for housing owned by corporations will be uniformly applied at the highest individual tax rate. Currently, 종부세 is imposed by summing the publicly announced prices of owned houses per taxpayer regardless of individual or corporation, but for corporations, this will be raised to the current highest level and collected uniformly. The tax rates are 3.0% for two or fewer houses (including one house in regulated areas) and 4.0% for three or more houses (including two houses in regulated areas). These rates were raised in the December 16 measures last year and will be applied from the 2021 종부세 imposition.

The 종부세 deduction for corporate-owned housing will also be completely abolished. Currently, individuals and corporations receive 종부세 deductions of 600 million KRW (900 million KRW for one household one house), but some corporations increased investments by exploiting the expanded deduction amount. For example, if an individual owns three houses alone, the deduction is only 600 million KRW, but if three houses are distributed by establishing two corporations, deductions up to 2.1 billion KRW (900 million KRW for one individual house, 600 million KRW per corporation) were possible. However, with this measure, no 종부세 deduction will be given for houses owned by corporations. This will also be applied from the 2021 종부세 imposition.

Additionally, the 종부세 exemption benefit for long-term rental housing owned by corporations in regulated areas?6 hundred million KRW in the metropolitan area and 300 million KRW in non-metropolitan areas?will end, and 종부세 will be imposed on registrations made after the 18th.

Mortgage loans will also be prohibited for those registered as housing purchase and rental businesses. Currently, in regulated areas, loan-to-value (LTV) ratios of 20-50% are applied, and loans are unrestricted in non-regulated areas, but starting from the administrative guidance enforcement on the 1st of next month, all new loan applications will be banned regardless of corporation or individual status and regardless of regulated or non-regulated areas.

This government measure takes into account the increase in the number of real estate trading and rental business corporations and their purchase share, which coincided with the real estate price rise. According to the Ministry of Land, Infrastructure and Transport, the number of related corporations increased from 23,000 at the end of 2017 to 26,000 at the end of 2018, and 33,000 at the end of last year. The number of rental business corporations also rose from 42,000 to 45,000, and then to 49,000 during the same period. The share of corporations in total apartment purchase transactions rose from 1% in 2017 to 5.2% from January to May this year. Since the end of last year, abnormal transactions with corporate shares exceeding 10% have been detected mainly in overheated areas such as Incheon and Cheongju, according to the Ministry of Land, Infrastructure and Transport.

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