The Gap Between High-End and Low-End Apartment Prices Worsens Tax Revenue Polarization

[Asia Economy Reporter Minyoung Kim] As the price gap between mid-range and high-end housing continues to widen, the tax revenue gap between the Seoul metropolitan area and other regions is also deepening. There are concerns that the special tax rate system for single-homeowners, introduced by the government to ease property tax burdens, is further widening the tax revenue disparity between regions.

According to KB Kookmin Bank's monthly housing market trends on the 13th, the nationwide apartment 5-quintile ratio was recorded at 9.8 in sales last month. This is the highest figure since the related monthly survey began in 2008. The 5-quintile ratio divides housing prices into five equal groups and calculates the average price of the top 20% divided by the average price of the bottom 20%. It indicates the price gap between high-end and low-end housing, with a higher ratio meaning more polarization. Considering that high-end housing is concentrated in Seoul and the metropolitan area, this implies that the apartment price gap between the metropolitan area and other regions has widened accordingly.

In fact, an analysis of real estate statistical information from the Korea Real Estate Board shows that over four years since November 2017, the average apartment sale price in the metropolitan area and large cities (including Sejong City) rose by 89% to 530.56 million KRW. In contrast, apartment prices in other regions increased by only 30% during the same period, reaching an average of 216.36 million KRW.

The problem is that the apartment price gap between the metropolitan area and other regions directly translates into a tax revenue gap between these areas. According to property tax imposition data from 2016 to 2020, the increase in property tax in the three Gangnam districts of Seoul (Gangnam, Seocho, Songpa), where high-end housing is concentrated, accounted for 19.9% of the total. Due to the real estate price surge, the metropolitan area took a significant share of the tax revenue increase. Property tax, which is levied in connection with housing prices, is the largest tax source for local governments.

There are also claims that the government's introduction of the special property tax rate system has further exacerbated the tax revenue imbalance between the metropolitan area and other regions. It is argued that regions outside the metropolitan area, which have relatively more homes priced under 900 million KRW, were more affected by the tax revenue reduction caused by the special tax rate system.

Ji-hyun Park, a research fellow at the Korea Local Tax Research Institute, pointed out in a report titled "Trends and Implications of Property Tax Reform on Housing" that "It is estimated that about 50% of all homes benefited from the special tax rate. The introduction of the special property tax rate system in 2021, targeting homes with official prices under 900 million KRW, led to a decrease in property tax revenue in non-metropolitan areas and intensified the concentration of tax revenue in Seoul."

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