At This Rate, Officially Announced Prices May Exceed House Prices... Freeze Likely for Next Year

Public Hearing on the Realization Rate of Officially Announced Prices

Photo by Asia Economy

While the publicly announced property prices increase every year, house prices have been on a downward trend, leading to an unprecedented phenomenon where market prices and publicly announced prices are reversed. As calls grow to abolish or revise the publicly announced price realization rate plan introduced by the Moon Jae-in administration, it is expected that the realization rate for next year will be frozen without an increase for the time being.

On the 5th, the Korea Institute of Public Finance proposed at the 'Public Hearing on the Realization Plan for Real Estate Publicly Announced Prices' held the day before that the existing realization plan be postponed for one year. For apartment complexes, they suggested maintaining the publicly announced price at 71.5% of the market price next year, the same level as this year.

Song Kyung-ho, a senior researcher at the Korea Institute of Public Finance, stated, "We considered lowering the realization target to prevent the publicly announced price from exceeding the market price at the time of property tax and comprehensive real estate tax payments, but the extent of the decline in real estate prices remains uncertain."

Given the uncertainty in the real estate market situation, it is deemed inappropriate to revise the long-term plan, so the intention is to observe the situation for one more year. The Ministry of Land, Infrastructure and Transport, which commissioned a research project in June to revise the publicly announced price realization plan, is likely to accept this proposal.

The current realization rate plan for apartment complexes is 69.0% on average in 2020, 70.2% in 2021, 71.5% in 2022, and 72.7% in 2023.

If the realization rate is frozen at this year's level next year, the rates for apartment complexes will be ▲ 69.4% for properties under 900 million KRW ▲ 75.1% for 900 million to 1.5 billion KRW ▲ 81.2% for over 1.5 billion KRW, averaging 71.5%. For detached houses, the rates will be ▲ 54.1% for under 900 million KRW ▲ 60.8% for 900 million to 1.5 billion KRW ▲ 67.4% for over 1.5 billion KRW, averaging 58.1%.

Although not adopted as a final opinion, the Korea Institute of Public Finance also suggested lowering the realization rate target from 90% to 80%. Senior researcher Song said, "Analysis of the rapid price rise and fall periods from 2021 to 2022 indicates that maintaining the publicly announced price realization rate at 90% could result in the publicly announced price exceeding actual transaction prices."

Along with lowering the realization rate target, a plan was proposed to extend the target achievement period from 2030 to 2035 for apartment complexes, and from 2035 to 2040 for detached houses.

The Ministry of Land, Infrastructure and Transport plans to announce the implementation plan for the publicly announced price realization rate to be applied next year around mid-month based on the public hearing discussions.

Previously, in 2021 when house prices were rising and the realization rate also increased, the nationwide apartment publicly announced prices rose by 19.1%, and in 2022 by 17.2%.

Publicly announced prices serve as the basis for taxation such as property tax and comprehensive real estate tax. The Moon Jae-in administration announced the publicly announced price realization plan in November 2020, setting a goal to raise it to 90% of market prices by 2030.

While publicly announced prices have been rising annually, the recent downturn in the real estate market has caused problems. It has been found that a reversal phenomenon between publicly announced prices and market prices has occurred as a side effect of the publicly announced price realization roadmap.

According to data submitted by the Ministry of Land, Infrastructure and Transport to Representative Yoo Kyung-joon of the People Power Party, in areas such as Gangbuk-gu and Dobong-gu in Seoul, Suseong-gu and Dalseo-gu in Daegu, Sejong City, and Yeongtong-gu in Suwon, housing prices as of July, the property tax payment time, fell by more than 10% compared to the market prices a year earlier. In these regions, if the publicly announced price reaches the current realization target of 90%, the publicly announced price could exceed the market price.

Representative Yoo Kyung-joon said, "House prices have fallen, but taxes are increasing, creating a difficult-to-understand situation that will face nationwide tax resistance," and added, "It is necessary to quickly restore the realization rate to the previous level."

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