Limited to Single-Homeowners, Patchwork Measures, Politicization of Taxes... The Dilemma of Property Holding Tax

Will Public Sentiment on Real Estate Turn Around? A Desperate Measure That Undermines Policy Consistency

Standard Detached House Prices Second Highest Ever... Standard Land Prices See Double-Digit Increase for Two Consecutive Years

Confusion Over Next Year's Property Tax as This Year's Official Prices Are Applied... The Purpose of Realistic Pricing Undermined

[Asia Economy Reporters Kangwook Cho, Minyoung Kim] The government's and ruling party's plan to ease property holding taxes has fallen into a dilemma. As the official prices of nationwide standard land and standard detached houses, which serve as the basis for real estate taxation, have surged sharply, the burden of property taxes next year is expected to increase significantly if this trend continues. In a situation where housing policies have failed, a sharp rise in tax burdens could irreversibly worsen public sentiment toward real estate.

According to the government and political circles on the 23rd, the government formalized plans to ease the property tax burden on low- and middle-income single-homeowners while announcing the official prices of standard land and standard detached houses released the day before. The government is reportedly considering various options on the table, including applying this year's official prices for next year's property tax assessment by March, temporarily lowering property tax rates on low- to mid-priced homes, reducing the upper limit on tax burdens, and adjusting the fair market value ratio downward.

However, the government, which has increased property tax burdens for four consecutive years, is facing criticism for a 180-degree policy reversal just before the presidential election, with accusations of 'politicizing taxes' spreading. Moreover, controversy is expected to continue over the potential destabilization of the taxation system regardless of which option is chosen.

◆ Detached House Price Increase Rate Second Highest Ever = Next year's official price for standard detached houses is set to rise by 7.36% compared to this year, a larger increase than this year's 6.80%. Since statistics began in 2006, this is the second-highest rate after 2019 (9.13%). By region, Seoul saw the highest increase at 10.56%, followed by Busan (8.96%), Jeju (8.15%), Daegu (7.53%), and Gwangju (7.24%). Except for Gangwon (3.44%), Chungbuk (3.98%), Chungnam (1.98%), Jeonbuk (3.69%), Gyeongbuk (3.16%), and Gyeongnam (3.17%), all other regions experienced increases above 5%. Next year's standard land official prices also rose by 10.16%, marking double-digit increases for two consecutive years following this year's 10.35%. This is the first time since 2007 that double-digit increases have been recorded consecutively.

By region, Seoul recorded the highest increase at 11.21%, followed by Sejong (11.76%), Daegu (10.56%), and Busan (10.40%). Other regions also showed high increases ranging from 7% to 9%. If this trend continues, the official prices for apartments and other multi-family housing announced in March next year are expected to exceed a 20% increase compared to the previous year.

◆ Applying This Year's Official Prices... "Taxation System Confusion" = One of the currently discussed measures is to levy next year's property tax based on this year's official prices. However, this means that property taxes would be assessed next year based on official prices from one year prior, raising concerns about potential confusion in the taxation system. Especially if property taxes are assessed annually based on the previous year's official prices, it would create a 'dilemma' that undermines the purpose of realistic price reflection.

If the measure is limited to single-homeowners, multi-homeowners with two or more properties would face a 'property tax bomb' equivalent to the increase in official prices this year. In this case, 2021 official prices would apply to single-homeowners, while 2022 official prices would apply to multi-homeowners, which could disrupt tax fairness due to double taxation bases.

Lee Eun-hyung, Senior Researcher at the Korea Institute of Construction Policy, pointed out, "The announcement means operating official prices and tax revenue collection separately," adding, "It would be much more practical to completely review the official price realization roadmap."

◆ Property Tax Rate Reduction Criticized as "Political Divide" = The ruling party and government are also considering lowering property tax rates for low- to mid-priced homes priced below 900 million KRW. However, since the government and ruling party temporarily lowered property tax rates for single-homeowners with official prices below 600 million KRW until 2023 last year and applied special property tax rates to homes priced between 600 million and 900 million KRW this year, there is little room left for further rate cuts. Although this aligns with policy direction, critics argue that repeatedly adjusting tax rates annually for political purposes undermines the government's own 'tax stability principle.'

Some suggest lowering the current 60% fair market value ratio used in property tax assessments instead of freezing tax rates or official prices. Currently, the fair market value ratio is 60% for property tax and 95% for comprehensive real estate tax this year. Next year, this ratio is expected to rise to 100%. Accordingly, the government projects next year's comprehensive real estate tax revenue to increase to 6.63 trillion KRW. Compared to this year's second supplementary budget of 5.1138 trillion KRW, this is nearly a 30% increase, and about a 16% increase compared to this year's tax bill of 5.7 trillion KRW.

Currently, the burden of real estate holding taxes (property tax + comprehensive real estate tax) is concentrated in the Gangnam 3 districts, where high-priced homes are clustered. This has led to criticism that even among single-homeowners, excessive tax burden disparities are fostering 'political division.'

◆ Uncertainty After Next Year... Tax Bomb Inevitable = The problem is that taxes are likely to surge sharply the year after next. Even if next year's property tax burden is temporarily lowered by freezing official prices, the tax burden will inevitably increase the year after next because the changes in official prices for two years will be reflected at once. Moreover, property taxes may rise next year even if housing prices fall, due to plans to raise the official price realization rate. The government has announced plans to increase the official price realization rate for multi-family housing from the current 69% to 90% by 2030.

For single-homeowners targeted by the government, tax burdens are expected to decrease through the easing measures, while multi-homeowners will have to pay taxes next year and the year after next comparable to this year.

Woo Byung-tak, Team Leader of Shinhan Bank's Real Estate Advisory Center, said, "Not only freezing official prices but also adjusting the tax burden cap and fair market value ratio must be implemented together to prevent a sharp increase in tax burdens the year after next," adding, "According to the government's buffer measures, tax burden differences will occur depending on household situations such as single-homeowners and multi-homeowners."

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