Government to Reduce Tax Burden to 2020 Levels... Third Quarter Property Tax Reform to Begin in Earnest

On the 17th, a view of apartments from Lotte World Tower Seoul Sky in Songpa-gu, Seoul. The Korea Real Estate Board announced that the actual transaction price index for apartment sales in Seoul in March was 175.1, up 1.4 points from the previous month (173.7). This marks the first time in five months since recording 180.0 in October last year that the Seoul apartment sales actual transaction price index has turned upward again. Photo by Jinhyung Kang aymsdream@

Review of the Plan to Realize Publicly Announced Property Prices

To Be Applied from the 2023 Price Announcement

Temporary Two-Homeowners Exempted from Acquisition Tax and Capital Gains Tax Surcharges

[Asia Economy Reporter Kim Min-young] The Yoon Seok-yeol administration has decided to revise and supplement the plan to realize publicly announced property prices, which had been set at about 90% of market prices, in order to reduce the burden of holding taxes caused by the recent sharp rise in housing prices. Instead of applying the 2023 publicly announced prices, the 2021 prices will be applied, and the fair market value ratio, which is the basis for calculating the comprehensive real estate holding tax, will be adjusted to reduce the holding tax burden on single-home households to the 2020 level. However, since this holding tax relief measure is selectively focused more on single-homeowners than multi-homeowners, the preference for a single well-chosen home and market polarization are expected to continue for the time being.

◆ Application of 2021 Publicly Announced Prices, Holding Tax Burden Relief... Property and Comprehensive Real Estate Tax System Reform in Q3 = According to the '10 Emergency Projects for Stabilizing the Livelihood of Ordinary People' announced on the 30th, the government will first ease the tax burden caused by the rise in publicly announced prices by applying the 2021 publicly announced prices instead of those of 2022 when calculating property tax and comprehensive real estate tax.

Regarding the comprehensive real estate tax, the government will adjust the current 100% fair market value ratio to reduce the tax burden on actual single-homeowners to the 2020 level. In March, the Moon Jae-in administration announced that, due to the sharp rise in housing prices causing publicly announced prices to soar by double digits for two consecutive years, it would apply last year's publicly announced prices instead of this year's to reduce the tax burden.

The new government is going further by implementing a reduction in the fair market value ratio, which is the basis for calculating the comprehensive real estate tax. According to the Ministry of Land, Infrastructure and Transport, the fair market value ratio for the comprehensive real estate tax has steadily increased from 80% between 2007 and 2018, to 85% in 2019, 90% in 2020, 95% in 2021, and 100% this year. The government plans to finalize the adjustment range of the fair market value ratio before the comprehensive real estate tax imposition notice in November and proceed with implementation.

Ham Young-jin, head of the Zigbang Big Data Lab, explained, "Although the comprehensive real estate tax rate itself was not directly changed, it is expected that the fair market value ratio will be eased to about 80% to 90% through the indirect strategy of adjusting the fair market value ratio to lower the tax base." However, multi-homeowners, who are subject to the publicly announced price tax base increased by 17.20% compared to last year when calculating holding taxes, are expected to continue facing a heavy tax burden at least until this year.

◆ Revision of the Roadmap for Publicly Announced Price Realization Rate... Final Announcement by the End of This Year = The current roadmap, which aims to raise the realization rate to 90% by 2030, will also be revised. The plan to realize publicly announced prices was established in 2020 under the Real Estate Public Announcement Act to reflect appropriate market prices and resolve imbalances in price ranges by property type. However, as the tax burden on citizens rapidly increased due to the recent sharp rise in housing prices combined with the realization rate, the government appears to be slowing the pace.

The likely revision direction is to either lower the target increase rate of publicly announced prices set at 90% of market prices or delay the final target achievement year set for 2030. The government plans to conduct research in June, followed by consultations with related ministries, expert reviews, and public hearings, and finalize the revised plan by the end of this year. The finalized plan will be applied from the 2023 price announcement. Woo Byung-tak, head of the Real Estate Team at Shinhan Bank WM Consulting Center, said, "Delaying the achievement time of the realization rate means the speed at which publicly announced prices rise will slow down. Lowering the 90% target increase rate will have the same effect."

◆ Temporary Two-Homeowners Exempted from Acquisition Tax Surcharge if Selling One House Within Two Years = The government also decided to reduce transaction tax burdens. For temporary two-homeowners in regulated areas including Seoul due to 'house switching,' if they dispose of the existing house within two years after acquiring a new house, they will be exempted from acquisition tax surcharges. Previously, if the existing house was not sold within one year, acquisition tax surcharges of up to 8% were applied, but the disposal period has now been extended by one year. This measure aims to prevent unfair tax surcharge cases caused by recent housing transaction slowdowns for temporary two-homeowners.

Currently, acquisition tax rates of 1% to 3% apply to single-homeowners, up to 8% for two-homeowners, and up to 12% for those owning three or more homes. Previously, only owners of four or more homes were subject to a flat 4% rate, but to curb housing demand, acquisition tax rates for two-homeowners were significantly raised from July 2020.

This measure aligns with the easing of capital gains tax exemption conditions implemented with the new government. The Ministry of Economy and Finance extended the disposal period for temporary two-homeowners to qualify for capital gains tax exemption from within one year to within two years after acquiring a new house, effective from the day before President Yoon Seok-yeol's inauguration on the 9th. The government plans to announce the legislation on the 31st and apply it retroactively to cases where the existing house is disposed of after the 10th, before the enforcement ordinance is amended.

◆ Continued Preference for a Single Well-Chosen Home... Uncertain Recovery in Transactions = The market expects that the government's real estate tax burden relief measures, which are selectively focused on single-homeowners rather than multi-homeowners, will continue the preference for a single well-chosen home.

Also, the effect of transaction tax reduction on revitalizing transactions is expected to be limited. Although the easing of capital gains tax surcharges for multi-homeowners may increase the supply of housing for sale in the market, it is difficult to expect a virtuous cycle of absorbing supply and recovering transaction volume.

Lab head Ham said, "Although the exemption period for acquisition tax surcharges for temporary two-homeowners has been extended from one year to two years, it is uncertain whether multi-homeowners will decide to purchase additional homes. Due to the possibility of economic slowdown, increased loan interest burdens, and weak housing prices, short-term profit expectations are low, so the easing of acquisition tax for multi-homeowners is unlikely to significantly boost transaction volume recovery."

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