Slight Cut in Property Tax, Transfer Tax Actually Strengthened? ... Ruling Party Unable to Find Direction

Deep 고민 of the ruling party over 종부세 and capital gains tax
Relaxation 추진 faced backlash as 'tax cuts for the rich'
Moves to 축소 long-term holding special capital gains tax exemption
Concerns that raising transaction tax may worsen market instability

[Asia Economy reporters Mun Jiwon and Im Onyu] The Democratic Party of Korea is struggling to find a clear direction for reforming real estate policies. The comprehensive real estate tax, initially planned for relaxation, is facing stagnation in discussions due to strong opposition from many lawmakers who view it as a 'tax cut for the wealthy.' Meanwhile, there are signs of moves to increase the burden of capital gains tax on high-priced homes and rental business operators. Industry experts warn that increasing the transaction tax burden, such as capital gains tax, could reduce long-term housing supply and heighten tax resistance, potentially destabilizing the market further.

According to political and real estate industry sources on the 24th, the Democratic Party's Real Estate Special Committee plans to present the tax adjustment proposals and housing supply measures it has prepared as agenda items at the policy lawmakers' meeting scheduled for the 27th. Given the significant internal disagreements over issues such as the comprehensive real estate tax, capital gains tax, and loan regulation relaxations, the committee intends to prepare multiple proposals for each issue to find solutions.

Minimal reduction in holding tax... Increase in transaction tax?

Regarding the comprehensive real estate tax, proposals include maintaining the current standards, raising the taxable threshold from the existing 900 million KRW to 1.2 billion KRW, and setting the taxable subjects based on the 'top 2%' rather than price. However, the likelihood of a radical proposal emerging appears low. Shortly after the by-election defeat, discussions leaned toward easing the comprehensive real estate tax burden, but criticism that "tax cuts should not be given to the wealthy" and concerns that it could further stimulate housing prices have stalled the debate.

On the other hand, for capital gains tax, there are reports that proposals to raise the non-taxable threshold from 900 million KRW to 1.2 billion KRW and to reduce the long-term holding special deduction rate, which currently can be up to 80%, are under discussion. If the long-term holding special deduction, which reduces capital gains tax when disposing of real estate held for a long time, is reduced, the transaction tax burden will effectively increase, raising concerns that market supply could decrease.

In particular, the special committee is also discussing increasing capital gains tax burdens on rental business operators to pressure them to release properties onto the market. Currently, rental business operators who have fulfilled the mandatory rental period and whose status has been 'automatically canceled' are exempt from capital gains tax surcharges indefinitely. The government views this benefit as a reason why multi-homeowners are reluctant to put properties on the market quickly and is considering applying capital gains tax surcharges after a six-month grace period.

Policy confusion causes Seoul housing prices to become unstable again

The industry is concerned that strengthening capital gains tax burdens could further distort the market. Although the targets are high-priced homes and multi-homeowners, increased transaction costs are likely to reduce housing supply and increase burdens on ordinary citizens. The fact that housing supply did not significantly increase in the first half of the year despite the government's plan to implement capital gains tax surcharges from June is cited as evidence against the policy. Particularly for rental business operators, there could be controversies over property rights infringement and declining policy trust.

In fact, recent Seoul housing prices are showing a V-shaped rebound trend due to a supply shortage. According to the real estate big data company 'Apartment Real Transaction Price,' the current number of apartment sale listings in Seoul is 45,720, a 5.5% decrease from 48,396 listings a month ago. This decline is interpreted as the completion of property disposals by multi-homeowners aiming to reduce taxes ahead of the June 1 capital gains tax surcharge and comprehensive real estate tax increase.

As the market shifts to favor sellers, Seoul housing prices are rising sharply. According to the Korea Real Estate Board, the apartment sale price increase rate in Seoul for the third week of May was 0.10%. Particularly, new record prices have been reported in Gangnam, Seocho, and Nowon districts, where expectations for reconstruction have grown following the election of Seoul Mayor Oh Se-hoon. The sale price of an 84㎡ unit in Eunma, Daechi-dong, Gangnam-gu surpassed 2.5 billion KRW on the 23rd of last month, and a 66㎡ unit in Jugong Complex 12, Sanggye-dong, Nowon-gu changed hands on the 19th at 840 million KRW, 60 million KRW higher than the previous highest price in April.

Ye Kyung-hee, senior researcher at Real Estate 114, predicted, "With additional land transaction permission zones designated, available listings are scarce, and the supply shortage caused by the capital gains tax surcharge on multi-homeowners may intensify, so Seoul apartment prices are expected to continue rising based on asking prices."

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