[Q&A] Why is the Property Tax Reduction Threshold Set at '600 Million Won'?..."Considering Support for Low-Income Housing"

Property Tax Reduction Criteria Debated at 600 Million and 900 Million Won
Final Decision Set at 600 Million Won or Less...Intended to Support Low-Income Citizens
If Actual Official Price is 900 Million Won, Market Price is 1.2 to 1.3 Billion Won
Government: "Hard to Consider as Low-Income"

Kim Heung-jin, Director of the Housing and Land Office at the Ministry of Land, Infrastructure and Transport (from the left), and Park Jae-min, Director of the Local Finance and Economy Office at the Ministry of the Interior and Safety, are holding a joint briefing on measures to realize the actual value of publicly announced land prices at the Ministry of Land, Infrastructure and Transport, Government Sejong Complex, on the afternoon of the 3rd. (Photo by Yonhap News)

[Asia Economy Reporter Moon Jiwon] The government finalized a plan on the 3rd to raise real estate official prices to about 90% of market prices. Accordingly, for apartments and other multi-family housing, official prices will be steadily increased over 10 years until 2030, and for single-family homes, over 15 years until 2035, raising the realization rate to 90%.

The government set different speeds to reach the 90% realization rate depending on the type and price range of real estate. For homes priced under 900 million KRW, the official price will be raised by about 1 to 1.5 percentage points annually for three years from 2021 to 2023, then by about 3 percentage points annually thereafter. For homes priced above 900 million KRW, the increase will start immediately next year at 3 percentage points annually.

Additionally, to reduce the tax burden on low-income households caused by the increase in official prices, the government will lower the property tax rate by 0.05 percentage points annually for three years starting next year for single-home owners with official prices of 600 million KRW or less.

Below is a Q&A related to the announcement of the real estate official price realization roadmap

- There was much debate about the initial property tax rate reduction criteria, whether for homes priced under 900 million KRW or 600 million KRW. Why was '600 million KRW or less' finally decided?

▲ If the official price is 900 million KRW, the market price is about 1.2 to 1.3 billion KRW. There was much deliberation on whether that could be considered low to mid-priced. Based on the intent to support housing stability for the common people, the criterion was set at 600 million KRW or less.

- You mentioned that the property tax rate reduction will be implemented for three years. Why was a temporary period specifically set?

▲ Tax reduction measures are generally implemented for three years. It does not mean that property tax reductions will stop after three years. After three years, we will reassess based on various real estate market conditions and the progress of official price realization.

- There was talk about setting the official price realization target at 80%. Was this considered during government-party consultations?

▲ At the previous public hearing, options of 80%, 90%, and 100% realization rates were presented. The 80% option was hardly discussed, and while the 100% option was mentioned a bit, most opinions favored 90%. The principle in the Official Real Estate Price Act is to reflect market prices as much as possible, but considering errors in the survey process, 90% was agreed to be appropriate.

- According to the official price realization roadmap, the realization rate for low to mid-priced homes does not increase significantly over three years, but property tax for homes priced 600 million KRW or less is reduced for three years. Is that correct?

▲ For homes under 600 million KRW, even within the same price range, there is a large difference in realization rates. Over three years, the official price realization rate will be gradually adjusted to about 70% to ensure balance, but some homes may experience significant realization increases. To reduce the burden on such homes, property tax reductions will be applied.

- Will the official price realization roadmap resolve the reversal phenomenon between housing and land official prices pointed out by the Board of Audit and Inspection?

▲ Since the housing official price ratio (80%), which was the cause of the reversal, was abolished this year, it is expected that the reversal will be resolved as housing and land official prices are realized at similar levels. The housing official price ratio was applied to single-family home prices since the introduction of housing price official prices in 2005, setting official prices at 80% of assessed prices. For homes priced above 900 million KRW, the reversal is expected to be mostly resolved within 4 to 5 years.

For homes under 900 million KRW, the realization rate is 52.4%, lower than land at 65.5%, but the reversal is expected to be gradually resolved over the realization period.

- Is there a possibility that official prices will exceed market prices?

▲ Since the target realization rate is set at 90%, the possibility of official prices exceeding market prices is very low unless extreme errors occur. Various data such as actual transaction records have been accumulated, and survey and evaluation techniques have improved, increasing the accuracy of market price estimation compared to the past. According to the Real Estate Official Price Act, procedures for hearing owners' opinions, objections, and rights remedies are in place, so the possibility of exceeding market prices is very low.

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