[2020 National Audit] "Multi-homeowners' Investment Yield Plummets to 0.9%"... Effect of the July 10 Measures

Simulation Released by Kim Gyoheung, Member of the Democratic Party of Korea

[Image source=Yonhap News]

[Asia Economy Reporter Moon Jiwon] Since the July 10 measures significantly strengthened real estate taxes on multi-homeowners, the investment returns on real estate for multi-homeowners have sharply declined.

On the 16th, Kim Gyoheung, a member of the National Assembly Land, Infrastructure and Transport Committee from the Democratic Party of Korea, revealed this decline in investment returns during a National Assembly audit of the Ministry of Land, Infrastructure and Transport, stating, "We obtained simulation results conducted by the Ministry of Land, Infrastructure and Transport and other government departments."

Kim explained, "Before the July 10 measures, the annual real estate investment return rate for multi-homeowners was 12.2%, but after all the real estate tax regulations of the July 10 measures are implemented on June 1 next year, the return rate is analyzed to sharply drop to 0.9% annually."

This simulation assumes a case of a single household owning two houses in a regulated area, purchasing a 2 billion KRW house with a 1 billion KRW jeonse deposit.

Assuming the house price increases by 10% annually, holding it for 10 years would generate a capital gain of about 3.2 billion KRW, but previously, taxes such as acquisition tax, comprehensive real estate tax, and capital gains tax amounted to 1.2 billion KRW.

However, if all the tax strengthening measures announced through the July 10 measures are implemented, the taxes payable in the same situation will rise significantly to about 3.1 billion KRW.

Accordingly, the annual return rate for multi-homeowners is expected to drop sharply from 12.2% to around 0.9%. Kim said, "An annual return rate of 0.9% means that, no matter how low the interest rate environment is, the incentive to invest virtually disappears."

Regarding this, Minister of Land, Infrastructure and Transport Kim Hyunmi said, "The July 10 measures are intended to recoup real estate investment profits," and added, "I think there could be changes in the (return) rates."

Previously, the government raised the comprehensive real estate tax rates to 1.2?6.0% by tax base brackets for 'three or more houses and two houses in regulated areas' in the July 10 measures. Acquisition tax and capital gains tax for multi-homeowners and corporations were also increased.

Referring to the decline in multi-homeowners' returns, Kim suggested, "We might consider reviewing the Loan-to-Value (LTV) regulations."

Kim emphasized, "If LTV regulations are too excessive, it becomes very difficult for those trying to purchase their own homes." In fact, in Incheon Seo-gu, Kim's constituency, complaints have arisen that it has become difficult for ordinary citizens to buy homes since the area was designated as a regulated zone and loan regulations were significantly tightened.

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