[Choi Jun-young's Urban Pilgrimage] Cities and Property Tax

'Chebiji' Leaving Some Land for Local Government Construction Cost Recovery
Jamsil Lotte Tower and Dogok-dong Tower Palace Built on Chebiji Sold by Seoul City
Tax Increase Due to Official Price Realization Should Not Become Punitive Tax

On the 7th, as the number of jeonse listings decreased due to the revision of the Lease Protection Act and other factors, the upward trend in Seoul's jeonse prices continued. This photo shows the city view from Lotte World Tower Seoul Sky in Songpa-gu. Photo by Mun Ho-nam munonam@

Managing and operating a city has always been a costly and labor-intensive task throughout history. Maintaining roads and cleaning up waste and garbage have been fundamental aspects of city management across all cultures and eras. As populations grew, the costs required for city management?such as supplying clean water, creating green spaces and parks, and building schools?increased steadily. Securing funding remains an eternal challenge for city administrators.

The most straightforward way to raise the necessary funds for a city is to collect fees uniformly from its residents. Charging residents and using those funds for city management is simple and clear. The “resident tax” collected in our country falls under this category.

However, there is a limit to the amount that everyone can pay without dissatisfaction. As the need to collect more funds arose, various types of taxes emerged. Among these, the most common criterion was land and buildings owned. It was assumed that those who owned land and buildings had a greater capacity to pay more.

Taxes based on visible land and buildings were accepted as reasonable and gradually formalized under the name “property tax.” Property tax is often the responsibility of local governments managing the city. Fundamentally, property tax is paid in exchange for receiving various services necessary for the city. Unlike income tax, which is paid when income is generated, property tax is generally paid regardless of income generation because city management must be continuous.

In cities with diverse industrial and commercial activities, managing finances based on property tax is not difficult. However, operating a growing city solely on property tax is challenging. Collecting the costs required for many projects due to urban expansion from existing residents places too heavy a burden on them.

Cities in such situations have utilized profits generated from various developments. When creating new urban areas, some land was left as “chebiji” (vacant land) and sold after the urban area was established to recover the costs of city construction.

Tower Palace exterior view.

In our country, the situation where selling land was the only way to pay public officials’ salaries and carry out various development projects continued until the 1980s. Few people now remember that the enormous costs required for Gangnam’s development were raised by selling chebiji generated during the urban planning process. The sites of Seoul’s iconic high-rise buildings, such as Jamsil Lotte Tower and Dogok-dong Tower Palace, were all developed on chebiji sold by the Seoul city government to support the city’s finances.

Just as central banks issue and circulate currency through the “magic” of credit, local governments perform a similar function through their own “urban planning authority.”

Once a city is completed through this process, a stable revenue source can be secured by levying property taxes on land and buildings. From then on, the issue shifts to how to set the tax rate. If taxes are too high, businesses and people may move elsewhere. On the other hand, if the taxes paid result in improved services and living conditions, residents may accept them, so comparing tax rates alone is not appropriate.

California in the United States levies a property tax of 1% based on the purchase price of a home. New Jersey applies a tax rate as high as 3%. For a home worth 1 billion won, this means paying 10 million to 30 million won annually. Although this seems like a huge burden, several factors are involved.

In California, the tax is based on the purchase price, not the market value, so different taxes are paid depending on the purchase time. Although a 3% tax seems enormous, much of the collected tax is invested in the community, especially schools. Areas that bear high costs often become prestigious school districts, so there is little dissatisfaction. Moreover, property taxes paid can be deducted during income tax calculations, effectively reducing the actual burden.

On the 8th, marking the solar term Hanro (Cold Dew) and clear autumn weather, a blue autumn sky stretched over the city viewed from Seoul Sky, the observation deck of Lotte World Tower in Songpa-gu, Seoul. Photo by Kim Hyun-min kimhyun81@

The party responsible for paying property tax also varies by country. In many cases, the owner pays, but in the United Kingdom, the resident pays. If property tax is recognized as a fee for administrative services, this method is reasonable.

Because property tax, especially on urban housing, is paid regardless of income generation, it is logical to link it to the level of administrative services in the city. If the amount paid corresponds to improvements in local government services and living conditions, there will be no complaints; otherwise, problems arise. Also, it is appropriate for local governments to set the tax rate independently based on residents’ opinions.

From this perspective, our situation is quite unique. Measures to curb real estate price increases have led to a substantial increase in actual property taxes due to the realization of official land prices. However, local governments, which collect a significant portion of property taxes, have very limited authority in this regard.

While the realization of property taxes is a step in the right direction, it should not become a punitive tax. Housing is an essential commodity, and property tax is a fee for local government administrative services. It is time for a rational discussion and decision on property tax.

Choi Jun-young, Specialist, Law Firm Yulchon

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