Real Estate Regulation Easing Law Passed Deadline... Passage in July National Assembly Also 'Uncertain'

Amendment Bills on Capital Gains Tax and Real Residence Obligation Pending
Ruling and Opposition Parties Fail to Coordinate Opinions in June... Moving to July National Assembly
"Still a Long Way to Go... Immediate Passage Unlikely"

The real estate deregulation bills promoted by the Yoon Suk-yeol administration have hit a snag at the National Assembly's standing committee stage. The main bills in question are the Reconstruction Excess Profit Recovery Act (재초환법), which collects a 'burden charge' on excess profits generated during reconstruction projects, and the amendment to the Housing Act that abolishes the actual residence obligation applied to housing under the price ceiling system. Initially, the government aimed to implement the revised Reconstruction Excess Profit Recovery Act by July this year, but since the relevant standing committee intends to allow a 'sufficient period for reconciling differing opinions,' it is expected that the bills will not pass within this month.

According to the National Assembly's legislative information system on the 5th, the amendment to the Reconstruction Excess Profit Recovery Act was referred to the first subcommittee of the Land, Infrastructure and Transport Committee on February 15 this year, and three reviews have been conducted up to the 22nd of last month.

Agreement on 'Reconstruction Burden Charge' Realism... but Disagreement on Standards

The Reconstruction Excess Profit Recovery Act imposes a burden charge of 10-50% on the excess profit exceeding 30 million KRW, calculated by subtracting development costs and average housing price increases from the rise in housing prices between the approval of the reconstruction promotion committee and the completion date. After its introduction in 2006, the real estate market plunged into a slump, leading to repeated implementation postponements. When the Moon Jae-in administration took office in 2018, the burden charge notification for target complexes was issued for the first time. This sparked strong opposition mainly from reconstruction complexes, and due to a lack of execution will from local governments, the burden charges were not properly collected.

In response, the government announced the 'Rationalization Plan for Reconstruction Burden Charges' in September last year and pushed for easing the Reconstruction Excess Profit Recovery Act. Conditions have changed since the law was enacted in 2006, and especially in local areas, easing the burden charge is necessary, so improvement of the imposition criteria is required. On the 15th of last month at the Land Subcommittee, Kwon Hyuk-jin, Director of the Housing and Land Office at the Ministry of Land, Infrastructure and Transport, explained, "At the time of the system's introduction, it was designed so that burden charges would not be imposed in local areas," adding, "The purpose is to make the imposition criteria more realistic to increase acceptance among reconstruction owners and create an executable system."

Kim Jeong-jae, Chairman of the National Assembly Land, Infrastructure and Transport Subcommittee, is presiding over the Bill Review Subcommittee meeting held at the National Assembly on the 22nd. The meeting discusses the relaxation of the excess profit recovery standards for reconstruction (Reconstruction Excess Profit Recovery Act) and the abolition of the actual residence obligation (Housing Act). Photo by Kim Hyun-min kimhyun81@

The bill promoted by the ruling party and government was proposed by Kim Jeong-jae, a member of the People Power Party, in November last year. It aims to raise the exemption amount for reconstruction burden charges to 100 million KRW and expand the progressive additional imposition intervals to units of 70 million KRW. Under the current law, the exemption amount is 30 million KRW, and the additional imposition intervals are in units of 20 million KRW. The bill also includes provisions to delay the starting point for calculating excess profits from the 'approval date of the promotion committee formation' to the 'approval date of the association establishment' and to reduce the burden charge by 10-50% depending on the holding period for owners who have held a single reconstruction house for a long time.

However, since the ruling and opposition parties have not reached an agreement on detailed adjustments such as the exemption amount and additional imposition intervals, the bill remains pending in the subcommittee. The Democratic Party agrees with the premise of 'system realism' but argues that the ruling party's exemption amount is too high and the imposition intervals are too large. On the 15th of last month at the bill subcommittee, Democratic Party member Kim Byung-wook advocated for an exemption amount of 80 million KRW and imposition intervals of 60 million KRW. He explained that since real estate prices as of March this year have fallen compared to the end of 2021, when the government calculated the price increase, the standard should be 80 million KRW rather than 100 million KRW.

Reflecting the opposition's opinion, the Ministry of Land, Infrastructure and Transport proposed a 'revised bill' at the subcommittee on the 22nd of last month. The exemption amount remains at 100 million KRW, but the additional imposition intervals are applied differentially from 70 million to 40 million KRW depending on the rate. Additionally, the proposal expanded the reduction for long-term single homeowners from 'up to 50% reduction for those holding over 10 years' to '60% reduction for ultra-long-term holders over 20 years.'

The opposition also opposes the revised bill. On the 22nd of last month at the subcommittee, Democratic Party member Jang Cheol-min said, "It would be good to create an additional 60% application interval for the section over 350 million KRW," explaining, "This system was originally designed for the parts where excessively high excess profits occur in Gangnam." Democratic Party member Kim Byung-wook maintained his previous stance advocating for an exemption amount of 80 million KRW.

The Justice Party opposes the very policy of easing the burden charge. Justice Party member Shim Sang-jung said at the bill subcommittee on the 15th of last month, "The excess profit recovery is not a tax but a burden charge. Its purpose is not 'there is a tax on income' but to recover a portion of unearned income by the public for speculation or social equity," adding, "There is no reason for the government to exempt all profits gained from public privileges."

'Abolition of Actual Residence Obligation' May Not Even Be Discussed in June National Assembly

[Image source=Yonhap News]

Unlike the Reconstruction Excess Profit Recovery Act amendment, which both ruling and opposition parties agree on in principle, the 'abolition of the actual residence obligation' faces fierce opposition from the opposition, making its passage through the National Assembly more difficult. The government announced this measure as part of the January 3rd real estate policy to resolve the issue of unsold houses. For areas under regulation with the price ceiling system, the resale restriction period, which was up to 10 years, will be shortened to a maximum of 3 years, and the actual residence obligation of 2-5 years applied to price ceiling housing in the metropolitan area will be abolished. The Moon Jae-in administration had previously introduced the actual residence obligation clause out of concern for overheating in the subscription market and real estate speculation.

The Housing Act amendment to ease the actual residence obligation was proposed by Kim Jeong-jae and Yoo Kyung-jun, members of the People Power Party. Kim's bill stipulates that the residence obligation period is fulfilled if the buyer resides continuously not from the initial move-in date but until the house is transferred, while Yoo's bill calls for abolishing the actual residence obligation for metropolitan price ceiling housing altogether.

Both bills were submitted to the subcommittee three times between March and May but were not even discussed last month due to opposition party resistance. The ruling party urged the passage of the bills, arguing that although the resale restriction period was eased by the ordinance revision in May, the actual residence obligation nullifies the effect of the revision. However, the opposition criticized the government for failing to synchronize the timing of the amendment. Democratic Party member Maeng Seong-gyu said, "It is problematic to claim there is an issue because the law amendment has not been made despite easing resale restrictions," adding, "The timing of implementation should be synchronized when amending the law. Doing everything as you want and then blaming the law amendment for hindering policy is inconsistent." The opposition also raised concerns that abolishing the actual residence obligation could increase gap speculation.

Due to significant differences between the ruling and opposition parties on both easing the Reconstruction Excess Profit Recovery Act and abolishing the actual residence obligation, passage in the July National Assembly session is uncertain. Kim Jeong-jae, the People Power Party floor leader on the Land, Infrastructure and Transport Committee, said about the Reconstruction Excess Profit Recovery Act, "There is still some way to go. Since there are still differences, it cannot be passed immediately," adding, "We must narrow the gap while fully respecting the opinions of the members, rather than aiming for a specific timeline."

Regarding the Housing Act amendment, there is a possibility it will not even be discussed in the July National Assembly session. A ruling party member of the Land Committee said, "Unless public opinion forms that many people are inconvenienced by the actual residence obligation, the Democratic Party will be uncomfortable with the discussion," adding, "It seems some time is needed. (In the July National Assembly) it will not be discussed."

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