Multi-homeowners Face 'Tax Bomb' as Is... Concerns Over Burden Shifting to Tenants

Exclusion from Property Tax Burden Relief Measures
Enduring through Gifts Rather than Listing Properties
Last Year's Phenomena of 'Jeonse Turning into Monthly Rent' and 'Tax Shifting'

View of downtown apartment complexes from Namsan, Seoul

This year, although the publicly announced property prices rose sharply, the government simultaneously prepared measures to ease holding taxes, so the tax burden on single-home households did not increase significantly. However, multi-homeowners were excluded from these relief measures and, following last year, could not avoid a 'tax bomb.' While there is a possibility that multi-homeowners, unable to bear the tax burden, might put their properties on the market in 'white flag surrender,' concerns are greater that they might instead pass the tax burden onto tenants.

On the 23rd, the government held a real estate market inspection meeting at the Government Complex Seoul, chaired by Deputy Prime Minister and Minister of Strategy and Finance Hong Nam-ki, and decided to freeze the holding tax and health insurance premium burdens for single-home households at last year's levels. Specifically, for single-home households (as of June 1 this year), the 2021 publicly announced property prices will be applied when calculating this year's property tax and comprehensive real estate holding tax bases. Since the publicly announced property price is the standard price for levying holding taxes, using last year's prices effectively freezes property tax and comprehensive real estate holding tax at last year's levels.

According to this measure, the actual tax burden on single-homeowners is not expected to increase significantly. Considering the effect of the special property tax rate for property tax implemented since last year (a 0.05 percentage point reduction in tax rates by price bracket for single-home households with publicly announced property prices of 900 million KRW or less), the government explained that the property tax for this year will be lower than in 2020 for the group corresponding to 93.1% of all homes (single-home households with last year's publicly announced property prices of 600 million KRW or less).

However, multi-homeowners with two or more homes cannot avoid a substantial holding tax this year as well, following last year. For example, a two-homeowner holding an 84㎡ unit in Banpo Xi, Seocho-gu, Seoul, and an 84㎡ unit in Gwangjang Hyundai had a holding tax of 88.14 million KRW last year, but due to the rise in publicly announced property prices this year, the tax burden increases to 116.68 million KRW. This is a 32.4% increase compared to last year. This amount is more than five times the combined holding tax (20.3 million KRW) that a single-homeowner holding one of these apartments would pay this year. For a multi-homeowner holding three units, including an 82㎡ unit in Jamsil Jugong 5 Complex, Songpa-gu, the holding tax payable this year is estimated to exceed 200 million KRW.

The government continues its 'punitive tax' policy toward multi-homeowners, hoping they will put urgent sale properties on the market. However, the industry expects that the effect of new listings will not be significant, as multi-homeowners already cleared properties through a record-breaking 'gift rush' last year.

Rather, the dominant opinion is that some multi-homeowners may endure by passing the increased holding tax onto tenants. While there is a possibility that properties may come onto the market mainly from elderly or retired people with unstable incomes, most are likely to pass the holding tax burden onto tenants and hold on.

An industry official said, "Last year, landlords facing increased holding taxes such as comprehensive real estate holding tax already showed a trend of converting jeonse (long-term deposit leases) to monthly rent and raising rents to pass the tax burden onto tenants," adding, "This could accelerate the conversion from jeonse to monthly rent and the rise in monthly rent prices."

At the same time, voices calling for an overall easing of holding tax rates for multi-homeowners and a slowdown in the pace of publicly announced property price realization are expected to grow. Since the publicly announced property price realization rate increases annually according to the roadmap, holding taxes will inevitably continue to rise with housing prices. Lee Eun-hyung, senior researcher at the Korea Institute of Construction Policy, said, "It should be noted that this year's publicly announced property prices also rose significantly. If real estate prices continue to rise every year, there is no way to solve the current problem," adding, "The fundamental cause lies in the setting and implementation of the target period and realization rate for publicly announced property price changes."

President-elect Yoon Suk-yeol has promised to integrate the local property tax (재산세) and the national comprehensive real estate holding tax (종부세) in the long term and to lower the comprehensive real estate holding tax rate for single-homeowners to the level before the Moon Jae-in administration. He pledged to reduce the comprehensive real estate holding tax burden cap from the current 150?300% to 50?200% and to reestablish the plan for publicly announced property price realization.

However, whether these pledges can be realized is uncertain. Holding taxes require legal amendments, which need the consent of the Democratic Party, which holds a large majority. Especially for reforms or abolition of the comprehensive real estate holding tax, conflicts with the Democratic Party are inevitable, as these policies contradict the Moon Jae-in administration's policy direction.

Kim Soo-sang, Director of the Housing and Land Office at the Ministry of Land, Infrastructure and Transport, said, "Since the publicly announced property price roadmap is reviewed every three years, we will consult with the new government to consider revision plans," adding, "There will also need to be overall discussions with the new government regarding holding tax reform plans."

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