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[Asia Economy Reporters Inho Yoo, Mune Won] 95% (under 600 million KRW) vs 5% (over 600 million KRW)

The government's roadmap for the realization of publicly announced property prices and the plan to ease property tax burdens, confirmed and announced on the 3rd, are being criticized for focusing more on political logic than tax equity.

This is because the target period for the realization rate differs by as much as five years between high-priced and low-priced houses, and while providing a three-year property tax reduction benefit for houses with publicly announced prices under 600 million KRW, it further widened the tax burden gap between high-priced and low-priced houses.

Tax bomb focused on high-priced houses... Considering elections?

According to the government on the 4th, the Ministry of Land, Infrastructure and Transport and the Ministry of the Interior and Safety prepared a 'publicly announced price realization plan' and a 'property tax burden relief plan' that sequentially raise real estate publicly announced prices to about 90% of market prices, while temporarily reducing property tax for single-homeowners with publicly announced prices under 600 million KRW for three years.

The market points out that this plan seriously undermines tax equity. Among houses nationwide, those with publicly announced prices under 600 million KRW account for 95%. Under the pretext of easing the tax burden caused by the rapid realization of publicly announced prices, property tax is reduced, resulting in a tax structure where only the top 5% of houses face a sharp increase in holding tax burden.

This discriminatory structure is clearly revealed in the roadmap for the realization rate of publicly announced prices. Even now, houses priced over 1.5 billion KRW, which have a higher realization rate than mid- to low-priced houses, will have their publicly announced prices raised to about 90% of market prices in just five years, while houses priced under 900 million KRW have the period to reach 90% of market prices set at twice as long, 10 years, with a 'balance enhancement period' during which the rate increases by less than 1 percentage point annually for three years.

As a result, from next year for three years, the holding tax burden for low-priced houses will hardly increase or may even decrease, while high-priced houses must bear a sharp increase in tax burden. For this reason, some argue that this is a political calculation considering the by-elections next year and the 2022 presidential election.

Possibility of tax pass-through... Ultimately only tenants suffer?

Concerns have also been raised that some of the increased tax burden from raising publicly announced prices could be passed on to tenants. While some high-priced house owners or multiple homeowners may flood the market with listings unable to bear the 'tax bomb,' many are expected not to put their houses on the market due to capital gains tax burdens and expectations of price appreciation, instead raising jeonse deposits or monthly rents equivalent to the increased taxes.

Since the nationwide jeonse shortage has spread following the implementation of the contract renewal right and the rent ceiling system at the end of July, strengthening landlords' authority, such tax pass-through is expected to occur more easily. Ham Yeom-jin, Head of Zigbang Big Data Lab, pointed out, "If jeonse price instability continues until next year, there remains a risk that the pain of rising jeonse and deposit-based monthly rent will be transferred to tenants."

In fact, many analyses suggest that from next year, not only holding tax but also capital gains tax rates will rise up to 75%, limiting the appearance of listings from multiple homeowners. This is because the perception has spread that it is better to endure by paying comprehensive real estate tax or gift the property to children rather than selling the house while paying huge taxes.

Since taxes will increase immediately from next year for apartments and other multi-family housing priced over 900 million KRW, the preference for monthly rent or semi-monthly rent by landlords is also likely to become more pronounced. Park Won-gap, Senior Real Estate Specialist at KB Kookmin Bank, explained, "Due to the burden of holding taxes such as property tax and comprehensive real estate tax, there will be a noticeable tendency to prefer monthly rent, which is a kind of cash flow, over jeonse."

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