House Prices Eroded by Anxiety... Now Even Transactions Are Feared

Reducing Housing Brokerage Fees, But Prices Already Soaring Out of Control
Increased Tax Burden from Acquisition and Capital Gains Taxes
Listing Shortage Leads to a Vicious Cycle of Rising Sale Prices

[Image source=Yonhap News]

[Asia Economy Reporter Kangwook Cho] "What good is lowering the commission rate now? Housing prices have skyrocketed, and the burden has increased tremendously..."

This is the reaction pouring in ahead of the public hearing on the "Real Estate Brokerage Fees and Brokerage Service Improvement Plan" hosted by the Ministry of Land, Infrastructure and Transport on the 17th. It reflects public sentiment over the soaring housing burden as housing prices spiral out of control. The tax burden has increased throughout the entire real estate transaction process, including acquisition, holding, and transfer, making it difficult to freely buy and sell homes. Although the government belatedly proposed a reform plan to reduce excessive brokerage fees, criticism is spreading that all efforts are futile unless housing prices are controlled.

◇ Brokerage fees for 900 million KRW apartments cut in half = The proposed brokerage fee reform plan suggests applying a maximum rate of 0.4% for transactions between 200 million and 900 million KRW, 0.5% for 900 million to 1.2 billion KRW, 0.6% for 1.2 billion to 1.5 billion KRW, and 0.7% for amounts over 1.5 billion KRW. This is the second option among three proposals presented by the Ministry of Land, Infrastructure and Transport and the Korea Research Institute for Human Settlements. According to this plan, the current maximum rate of 0.5% for transactions between 600 million and 900 million KRW would be lowered to 0.4%. The flat 0.9% rate for transactions over 900 million KRW would be segmented into 900 million to 1.2 billion KRW at 0.5%, 1.2 billion to 1.5 billion KRW at 0.6%, and over 1.5 billion KRW at 0.7%. In other words, the maximum brokerage fee for a 900 million KRW home transaction would drop from the current 8.1 million KRW to 4.5 million KRW, roughly half. For a 1.5 billion KRW transaction, the fee would decrease from 13.5 million KRW to 10.5 million KRW, and for 2 billion KRW, from 18 million KRW to 14 million KRW.

For lease contracts such as jeonse and monthly rent, the maximum rates would be 0.3% for 100 million to 900 million KRW, 0.4% for 900 million to 1.2 billion KRW, 0.5% for 1.2 billion to 1.5 billion KRW, and 0.6% for over 1.5 billion KRW. If option 2 is finalized, the maximum brokerage fee for a 900 million KRW lease transaction would fall from 7.2 million KRW to 3.6 million KRW, halving the current rate. For a 1.5 billion KRW lease, it would drop from 12 million KRW to 9 million KRW, and for 2 billion KRW, from 16 million KRW to 12 million KRW.

◇ Seoul apartment sales brokerage fees tripled in 5 years = As housing prices surged, controversy over real estate brokerage fees intensified. Since brokerage fees are calculated as a fixed percentage of the transaction amount, fees rose alongside housing prices. According to last month's "Monthly KB Housing Price Trend," the average sales price of apartments in Seoul is 1.15751 billion KRW. Applying the maximum rate of 0.9% results in a brokerage fee of approximately 10.41 million KRW. This explains the complaints about having to pay over 10 million KRW just for apartment brokerage fees. The average price of Seoul apartments steadily increased from 624.48 million KRW in 2017 to 738.21 million KRW in 2018, 822.78 million KRW in 2019, and 950.33 million KRW in 2020. Calculating brokerage fees at these prices yields approximately 3.12 million KRW in 2017, 3.69 million KRW in 2018, 4.11 million KRW in 2019, and 8.55 million KRW in 2020. Simply put, brokerage fees more than tripled in five years.

◇ Acquisition tax and moving costs increase → fewer listings → housing price rise ‘vicious cycle’ = The problem is that as housing prices rose, acquisition taxes also soared, and combined with capital gains taxes and other transaction-related tax burdens, the transaction freeze worsened. According to the Citizens' Coalition for Economic Justice, Seoul apartment prices nearly doubled since the Moon Jae-in administration began. If a Seoul apartment priced at 600 million KRW at the start of the Moon administration now exceeds 900 million KRW, the acquisition tax rate has tripled from 1% to 3%. In other words, someone who bought a 600 million KRW home in 2017 paid 6 million KRW in acquisition tax, but buying the same home now at over 900 million KRW means paying 27 million KRW in acquisition tax, a 4.5-fold increase.

Buyers face triple burdens: rising housing prices, heavy acquisition taxes, and brokerage fees, while sellers also want to raise prices to cover brokerage fees and increased capital gains taxes. As acquisition taxes, licensed real estate agent fees, and other transaction costs rise, market listings decrease further, creating a vicious cycle that drives housing prices up again.

An industry insider said, "The government strengthened tax regulations to control housing prices, but as prices surged, transaction-related costs skyrocketed. Not only the homeless or multi-home owners but even those with a single home find it difficult to buy and sell due to the high transaction costs."

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