Residential Land 'Development Charges' Bomb... Why Do Buyers Pay? [Ryu Taemin's Real Estate A to Z]

Unawareness of Payment Obligation Succession Causes Numerous Damages
Charges Imposed from Development Permit Timing... Must Verify in Advance

[Asia Economy Reporter Ryu Tae-min] “I purchased a plot of land to build my countryside house, but I am shocked to find out that I have to pay a large amount in taxes unexpectedly. I had never even heard of the development charge when buying the land, and since the initial developer gained the development profits, why do I have to pay all the taxes?”

Recently, Mr. A, who built a countryside house on a 2,000㎡ plot in Gyeonggi-do, was surprised to receive a notice demanding over 15 million KRW in taxes. The tax item was the so-called 'development charge.' At the time of purchase, he received no guidance from the real estate agent, and despite the development being carried out by a separate company, he ended up bearing the full burden of the hefty development charge.

There is an increasing number of buyers facing difficulties due to a lack of proper understanding about the obligation and succession of development charge payments during the purchase of countryside house plots. The development charge is a tax imposed to recover part of the land price increase profit generated from development projects approved by the state or local governments through land use plan changes or development permits. It was established in January 1990 to prevent speculation aimed at development profits. Usually, 25% of the development profit is charged, where development profit refers to the difference between the land price after the completion of the development project and the land price before the project, minus development costs and normal land price increases during the project period. It is imposed when development projects are conducted on urban areas of 660㎡ or more, and non-urban areas of 1,650㎡ or more. However, for projects approved between January 1, 2017, and December 31, 2019, the charge applies to urban areas of 1,000㎡ or more and non-urban areas of 2,500㎡ or more.

The problem is that the obligation to pay the development charge is automatically transferred to the buyer who purchases the plot, resulting in unexpected tax burdens later on. Moreover, the tax imposition date is based not on the land purchase date but on the date when the development permit was granted, often causing the development charge to increase significantly. Since this tax does not arise immediately upon land sale, it is difficult to be aware of it during the transaction process. Additionally, developers or agents often fail to properly explain this to close the deal, leading many buyers to realize it too late.

As such cases increase, local governments in the affected areas have urged buyers to be fully aware of the succession of payment obligations in advance. An industry insider advised, “Instead of recklessly purchasing land just because the price is low, it is essential to check beforehand whether the land will incur a high development charge.” He added, “Especially, if the development cost statement is not voluntarily submitted within 40 days after building completion, a fine of up to 2 million KRW may be imposed. Being aware in advance that the development charge payment obligation is transferred can help reduce the burden.”

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