Tax Burden Backlash Leads to 'Official Price Freeze'... One-Time Measure Criticized Ahead of Presidential Election

Ruling Party and Government Agree on Rapid Tax Burden Relief
Next Year's Property Tax Calculated Using This Year's Official Prices
Possibility to Lower Burden by Adjusting Fair Market Value Ratio
However, Market Points to 'Temporary Measure' Before Election
Rightward Shift 3 Months Before Presidential Election... 'Turning a Blind Eye'

Democratic Party of Korea leader Song Young-gil is speaking at the party-government consultation on system improvement related to publicly announced prices held at the National Assembly Members' Office Building on the morning of the 20th. [Image source=Yonhap News]

The ruling party and the government agreed on the 20th to ease the burden of property tax and health insurance premiums for single-home households, which is interpreted as a measure to prevent damage to actual homebuyers caused by the rapid rise in housing prices. Since housing prices have risen to record highs every year under the Moon Jae-in administration, causing excessive tax burdens and strong public backlash, the ruling party and government have come up with the desperate measure of "supplementing the official price system," according to analysis.

However, the industry points out that the Democratic Party of Korea is pushing for a "one-time" tax burden relief aimed at winning votes ahead of the presidential election. Considering that Democratic presidential candidate Lee Jae-myung has focused on tax increases in his pledges so far, and that the ruling party and government have decided not to touch the plan to realize official prices this time either, there is a high possibility that this will be a "turning a blind eye" type of system reform that temporarily lowers taxes before the election but raises them sharply later.

Next Year Applies This Year's Official Prices, Adjustment of Fair Market Value Ratio

The core of the ruling party and government consultation on this day is the freeze of holding tax next year. First, they decided to consider applying the 2021 official prices instead of the 2022 official prices, which serve as the basis for calculating property tax and comprehensive real estate tax next year. Along with this, they are also considering introducing a cap on holding tax for single-home households. This is a desperate measure taken because it is realistically difficult to recalculate the official prices of detached houses and apartments for next year, which have already entered the calculation process.

The government plans to continue raising official prices significantly every year according to the official price realization roadmap announced last year, and the increase rate of official prices for apartments next year is expected to exceed 20%. In this case, the tax burden on homeowners will inevitably increase. Accordingly, it has become highly likely that next year's property tax and comprehensive real estate tax will be calculated based on this year's official prices. If this year's official prices are applied to next year's tax calculation as planned by the ruling party and government, it will effectively freeze holding tax at this year's level.

In particular, the ruling party and government hinted that they might adjust the fair market value ratio, which is a discount rate concept applied when determining the tax base. For property tax, the fair market value ratio is currently 60%, and lowering it by just 5 percentage points could reduce next year's tax burden. For comprehensive real estate tax, this ratio is scheduled to increase from 95% this year to 100% next year, but there is also talk of adjusting the rate of increase to lower the tax burden.

Park Wan-joo, chairman of the Democratic Party's Policy Committee, said, "We also requested to review the temporary deferral of comprehensive real estate tax payment for elderly single-home owners," adding, "We requested a review including the adjustment of the fair market value ratio." However, legal amendment procedures are required for this. According to the Ministry of Land, Infrastructure and Transport, which is the competent authority, as long as the Local Tax Act is amended before June next year, when the tax obligation is established, it is acceptable.

Market Confusion Due to Tax Reform Becoming a Political Tool

However, the industry criticizes that the ruling party and government are only producing temporary policies to secure support ahead of the presidential election in March next year. In fact, they decided not to review the plan to raise the official price realization rate to 90%, which is a major cause of excessive tax burden, on this day. Chairman Park said, "We will steadily implement the real estate official price realization plan established last year."

Lee Eun-hyung, senior researcher at the Korea Construction Policy Institute, said, "I agree on the necessity of immediate temporary measures, but discussions on long-term directions also seem necessary," adding, "If housing prices rise, there is room to reconsider the official price realization roadmap."

There are also many criticisms that the ruling party and government, which had been strengthening real estate regulations, are causing market confusion by attempting a "rightward shift" before the presidential election. Candidate Lee had maintained a stance throughout this year to stabilize housing prices by recovering a large amount of unearned income, but suddenly changed his position three months before the election by first postponing the heavy capital gains tax and then proposing a complete overhaul of official prices.

In the market, opinions are emerging that it is appropriate to partially ease regulations now to reduce tax burdens and allow properties to be put on the market, but some also strongly oppose, saying, "Only those who sold their houses early according to existing government policies have become fools."

Seo Jin-hyung, president of the Korea Real Estate Society (professor at Gyeongin Women's University), said, "The ruling party and government need to show determination by immediately amending laws rather than just presenting temporary measures in consideration of next year's presidential election," adding, "They should also adjust the realization rate and tax rates to reduce the tax burden."

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