Reducing Property Taxes for Multi-Homeowners... Will It Also Decrease Tenants Being Passed On Monthly Rent?

Government Tax Reform Proposal Ownership Tax Simulation
Seoul 2 Houses + Daejeon 1 House 3-Homeowner 76%↓ Next Year

The tax reform plan announced by the government on the 21st centers on the abolition of the comprehensive real estate tax (종부세) surtax rate, lowering the upper limit of tax burden, and raising the basic deduction amount. It is expected that the holding tax burden will significantly decrease not only for single-homeowners but also for multi-homeowners.

On the 22nd, Asia Economy commissioned Woo Byung-tak, Head of the Real Estate Team at Shinhan Bank WM Consulting Center, to analyze the plan. The analysis showed that if the tax reform plan is implemented as is, the holding tax burden for multi-homeowners will decrease by more than 70%.

A three-homeowner holding three apartments?an 84㎡ unit in Eunma Apartment, Daechi-dong, Gangnam-gu, Seoul; an 84㎡ unit in Mapo Raemian Prugio (Marae-pu), Ahyeon-dong, Mapo-gu; and an 84㎡ unit in Jukdong Prugio, Yuseong-gu, Daejeon?will see their holding tax (including comprehensive real estate tax, property tax, and special rural tax) next year drop from 147.07 million KRW before the reform to 35.39 million KRW after the reform, a 75.9% decrease. For those holding two units in Marae-pu and Jukdong Prugio, the tax burden is expected to decrease from 43 million KRW to 10.49 million KRW, a 75.6% reduction.

The higher the price of the apartment, the greater the reduction in holding tax burden. For a single apartment with a publicly announced price of 2.5 billion KRW, the comprehensive real estate tax burden will decrease from 5.7 million KRW in 2019, 6.17 million KRW in 2021, and 6.74 million KRW in 2022 to 3.3 million KRW next year. For a single homeowner living in a 3 billion KRW apartment, the holding tax was 10.05 million KRW in 2021 and 10.82 million KRW in 2022, but next year it will be about 5.56 million KRW, roughly half. The comprehensive real estate tax was 8.83 million KRW in 2020. Especially if the government’s ongoing plans for a special deduction of 300 million KRW for single homeowners this year and the reduction of the fair market value ratio to 60% are realized, the owner of an 84㎡ unit on the 29th floor of Marae-pu may not have to pay any comprehensive real estate tax this year. The holding tax is expected to be 3.39 million KRW, 22.5% less than last year’s 4.37 million KRW.

However, despite this reform plan, the prevailing view is that it will be difficult to reverse the real estate market’s transaction freeze and inventory backlog trend. Lim Byung-chul, Senior Researcher at Real Estate R114, said, "While the easing of regulations on multi-homeowners may lead to some low-price buying in certain areas, acquisition tax and capital gains tax are still being heavily imposed, and with the expected interest rate hikes, it is difficult to see this measure reviving overall buying demand."

Lee Eun-hyung, Research Fellow at the Korea Construction Policy Research Institute, said, "There is a possibility that multi-homeowners holding multiple properties in provincial areas or low-priced homes may withdraw listings, but the extent of tax burden relief varies greatly by region and owner, making it difficult to generalize."

On the other hand, there is some expectation that the pressure on monthly rent increases, which had been soaring due to tax pass-through, will be somewhat alleviated. Ko Jun-seok, CEO of J-Edu Investment Advisory, said, "In the real estate market, holding taxes tend to be passed on from landlords to tenants, but with the easing of holding tax burdens this time, the speed and intensity of this pass-through may decrease," adding, "This could be a stabilizing factor in the rental market."

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