Despite Controversy, 2% Cap on Comprehensive Real Estate Tax Abolished... Who Would Trust the Shepherd Policy?

Ruling and Opposition Clash Over Long-Term Holding Special Deduction Ahead of Presidential Election, Compromise Difficult
High-Value Homes Subject to Comprehensive Real Estate Tax Priced at 1.1 Billion Won, But Capital Gains and Property Taxes Apply from 900 Million Won, Causing Confusion
Experts Say "Frequent Policy Changes Cause Market Confusion, Set Comprehensive Real Estate Tax Threshold at 1.5 Billion Won"

[Asia Economy Reporters Jang Sehee and Kim Dongpyo] Following the abrupt abolition of the Democratic Party's proposed 'comprehensive real estate tax (종합부동산세) applied to the top 2%,' the ripple effects are intensifying as the housing supply measures are also facing difficulties in being implemented as planned. In particular, there are criticisms that the Democratic Party's Special Committee on Real Estate, which was established to devise various policies including the 2% comprehensive real estate tax, has become useless. With the plan, which was pushed forward after months of discussion, being scrapped, concerns are rising that trust in future real estate policies will further decline.

◆Uncertainty over Income Tax Law Amendments and Slow Progress on Supply= The next target for the ruling party's delayed real estate policies is the Income Tax Law, which includes the long-term holding special deduction. According to the National Assembly on the 20th, the Income Tax Law proposed by Democratic Party lawmaker Yoo Dong-su is expected to be discussed at the regular session next month. A Democratic Party official stated, "After discussions, it is expected to be processed in November."

The possibility of clashes between the ruling and opposition parties during the Income Tax Law discussions has increased. The ruling party is likely to feel that it cannot afford further delays. According to Yoo Dong-su's proposal, even if a multi-homeowner becomes a single-homeowner, the long-term holding special deduction will be recalculated from the point they become a single-homeowner. At this time, the existing deduction rate of 40% based on the residence period is maintained, but taxation varies according to the holding period based on capital gains. If the capital gains are 500 million KRW or less, the holding period deduction rate is 40%; for gains exceeding 500 million KRW up to 1 billion KRW, 30%; for gains exceeding 1 billion KRW up to 1.5 billion KRW, 20%; and for gains exceeding 1.5 billion KRW, 10% is applied.

However, the opposition party, the People Power Party, opposes this. They view that inducing housing transactions through increased taxes has limitations, such as accelerating the phenomenon of housing supply withdrawal. A People Power Party official said, "There is a progressive opinion that the long-term holding special deduction rate should be raised to 100% for single-homeowners," adding, "At the very least, the current maximum deduction rate of 80% should be maintained."

The opposition's level of resistance is expected to increase further. Having already forced the ruling party to withdraw three times, and with the presidential election next year approaching, intensifying the offensive is seen as effective. Ryu Seong-geol, the opposition party's ranking member of the National Assembly's Budget and Accounts Committee, said at the party's floor strategy meeting, "The Democratic Party tried to pass the comprehensive real estate tax law as party policy but scrapped it and enforced the People Power Party's position," adding, "It is meaningful that the burden on the people has been significantly reduced."

The government's large-scale supply policy is also sluggish. The ruling party and government express their intention to implement housing supply promptly, but finding additional sites is not easy, and cooperation from local governments is expected to be difficult. In fact, it has been confirmed that the plan to announce the remaining nationwide 130,000 housing units at the end of this month does not include the Seoul area. Also, the Taereung Golf Course has not even been designated as a district. Designation and redevelopment/reconstruction promotion are impossible without Seoul City's cooperation. The government also plans to finalize district designations for 240,000 housing units by the end of the year and supply a total of 62,000 pre-sale units by 2022.

◆Criticism of the Relaxation of the Comprehensive Real Estate Tax Threshold to '1.1 Billion KRW'= Although the 2% comprehensive real estate tax threshold plan was withdrawn, criticism remains that the tax policy lacks consistency and fairness.

This amendment applies only to single-homeowners. The comprehensive real estate tax threshold for single-homeowners is raised from 900 million KRW to 1.1 billion KRW, but the threshold for multi-homeowners remains at 600 million KRW. This could result in a situation where a person owning one high-priced house does not pay the comprehensive real estate tax, while a person owning two low-priced houses does. Jointly owned single-homeowners by couples are also raising fairness issues, as their tax threshold remains at 600 million KRW per person (1.2 billion KRW combined for couples).

The segmentation of taxable value brackets has turned the tax thresholds into a confusing chart, and the differing standards for high-priced houses increase taxpayers' burdens. While the comprehensive real estate tax threshold is set at a publicly announced price of 1.1 billion KRW, the capital gains tax considers high-priced houses as those with market prices of 900 million KRW. The property tax exemption threshold is also at a publicly announced price of 900 million KRW. There is a plan to raise the capital gains tax exemption threshold from 900 million KRW to 1.2 billion KRW, which would result in inconsistent thresholds of 1.2 billion KRW, 1.1 billion KRW, and 900 million KRW.

Adding the real estate brokerage commission standards makes the tax thresholds even more complicated. Currently, the highest commission rate (0.9%) applies to housing transactions over 900 million KRW, effectively classifying houses over 900 million KRW as high-priced. The Ministry of Land, Infrastructure and Transport plans to apply the highest commission rate (0.7%) only to housing transactions over 1.5 billion KRW in its brokerage commission reform plan. This means the criteria for classifying high-priced houses change depending on the tax being paid.

Seo Jin-hyung, president of the Korea Real Estate Society and professor at Gyeongin Women's University, pointed out, "Frequent changes in policy content and tax standards can ultimately lead to market confusion," and emphasized the need to organize the standards for high-priced houses. He said, "Since the original purpose of introducing the comprehensive real estate tax was for the top 1%, it is necessary to set the publicly announced price of 1.5 billion KRW or more as the threshold, reflecting the current apartment price situation."

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