Reflecting the Housing Market... Next Year's Officially Announced Land Price Realization Rate Returns to 2020 Level

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Second Public Hearing on the Plan to Realize Actual Market Value of Real Estate Official Prices

Recommendation to Lower Official Prices to 2020 Levels

Roadmap for Official Price Realization Rate to be Revised and Reexamined in 2024 Considering Market Conditions

[Asia Economy Reporter Kim Min-young] Next year, the official price realization rate of real estate (the ratio of official price to market price) is expected to be lowered to the 2020 level. This is a step further than the Ministry of Land, Infrastructure and Transport and the Korea Institute of Public Finance’s revised proposal presented at the first public hearing, which suggested freezing the 2023 official prices at this year’s level. This measure is interpreted as a response to issues such as the reversal between actual transaction prices and official prices caused by recent housing price declines, and the excessive increase in the national tax burden.

◆ Excessive Tax Burden Must Be Alleviated... Restore Official Prices to 2020 Levels = Professor Yoo Seon-jong of Konkuk University, a member of the expert advisory committee on improving the official price system, suggested at the second public hearing on the plan to realize actual market value of real estate official prices held by the Ministry of Land, Infrastructure and Transport on the 22nd, "It is desirable to restore the realization rate to the 2020 level in light of the reversal issue between actual transaction prices and official prices, the excessive increase in the national burden, and the need to improve price balance."

He emphasized the need to lower the 2023 official price realization rate to the early 2020 level before the Moon Jae-in administration’s official price realization roadmap was announced.

Since the Moon Jae-in administration announced the ‘Plan to Realize Actual Market Value of Real Estate Official Prices’ in November 2020, official prices have risen annually in line with housing price increases. Accordingly, the nationwide average realization rate for apartment complexes, which was 69.0% in 2020, rose to 70.2% last year. According to the Moon administration’s plan, the realization rate would increase to 71.5% in 2022 and 72.7% in 2023.

If official prices are restored to the 2020 level as proposed by the advisory committee, the realization rate for apartment complexes will decrease from the initial 72.7% to 69.0%. The realization rate is applied differently depending on the market price of the apartment complexes. For apartments under 900 million KRW, it will be lowered from 70.0% to 68.1%, for apartments between 900 million and 1.5 billion KRW from 78.1% to 69.2%, and for apartments over 1.5 billion KRW from 84.1% to 75.3%. Standard houses will drop from 60.4% to 53.6%, and standard land from 74.7% to 65.5%. This is a more advanced proposal than the Korea Institute of Public Finance’s suggestion to freeze next year’s official prices at this year’s level.

The advisory committee advised that the realization rate after 2024, the target realization rate, and the target achievement period divided by type and price range, as proposed by the Korea Institute of Public Finance, should be reexamined in the second half of next year considering market conditions and economic circumstances.

Professor Yoo Seon-jong explained, "The market situation in 2023 is uncertain and opaque, making it difficult to finalize a revised realization plan considering the national tax burden level next year. We considered lowering the 90% target to prevent official prices from exceeding market prices at the time of property tax and comprehensive real estate tax payments, but there is also a possibility that real estate prices may fall further."

◆ Record High Number of Comprehensive Real Estate Tax Payers... Freezing Official Prices at This Year’s Level Is Insufficient = At the first public hearing held on the 4th, the Ministry of Land, Infrastructure and Transport and the Korea Institute of Public Finance proposed as a final plan to maintain next year’s official price realization rate at this year’s level and to postpone overall revision of the realization plan for one year considering the uncertain real estate market situation.

For apartment complexes and other multi-family housing, the official price will be set at an average of 71.5% of market price next year, as it was this year. However, the subsequent meeting of ministers related to real estate failed to reach a conclusion on this and saw the need for additional review to alleviate the national tax burden.

With the number of people receiving comprehensive real estate tax notices reaching a record high of 1.31 million starting from the 21st, complaints are mounting that official prices, which do not properly reflect market prices, should be lowered. According to the National Tax Service, the number of people receiving housing-related comprehensive real estate tax notices this year is 1.22 million, with a tax amount of 4.1 trillion KRW. The number of people receiving land-related notices is 115,000, with a tax amount of 3.4 trillion KRW.

The number of people receiving housing-related comprehensive real estate tax notices accounts for 8.1% (1.22 million) of the total 15.089 million housing owners, meaning 8 out of 100 homeowners pay the comprehensive real estate tax. The number of taxpayers increased due to the sharp rise in real estate prices last year and the Moon Jae-in administration’s increase in the official price realization rate, which caused official prices announced earlier this year to rise.

However, as housing prices continue to decline due to interest rate hikes, a reversal phenomenon has occurred where actual transaction prices fall below official prices, worsening public sentiment toward paying the comprehensive real estate tax. Housing prices are rapidly falling, but taxpayers must pay the comprehensive real estate tax based on official prices as of January 1, when prices were at their peak.

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