Union Members Face Tax Bomb... One Smart House Better Than Two

Noryangjin 1 Redevelopment Promotion Zone is an area with high rental demand due to the nearby academy district and exam village. The area around Noryangjin 1 District / Photo by Hwang Seoyul

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[Asia Economy Reporter Hwang Seoyul] Recently, there has been a growing trend in redevelopment and reconstruction project complexes to convert 1+1 pre-sale rights into a single large unit. The 1+1 pre-sale refers to a method where a union member who lived in a medium-to-large-sized unit receives two small-to-medium-sized units after reconstruction. Owning two units can be advantageous when the market is favorable, but recently, the 'tax bomb' has become a greater concern.

According to the maintenance industry on the 12th, Noryangjin 1 Redevelopment Promotion Zone (hereafter Noryangjin 1 Zone) in Dongjak-gu, Seoul, is reportedly considering expanding the number of large-sized units due to increasing demand for a single large unit pre-sale right instead of small-sized 1+1 pre-sale rights. This reflects a preference for a single solid unit as the tax burden on multi-homeowners has increased.

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Back in 2017, when the union establishment approval was imminent, the area had a high rental demand due to the nearby exam village and academy district, creating a preference for 1+1 pre-sale. The strategy of purchasing one 35-pyeong unit and one 25-pyeong unit separately for residence and rental purposes became the norm. However, the situation has changed recently due to increased tax burdens on multi-homeowners under the Moon Jae-in administration. Currently, owners of two houses in regulated areas must pay capital gains tax with an additional 20 percentage points on the basic rate, and those with three or more houses must pay an additional 30 percentage points. The official public price of apartment complexes, which serves as the basis for property tax, rose by 17.22% nationwide compared to last year, further increasing the burden on multi-homeowners. The government applied the previous year's official price to calculate taxes for single-homeowners to reduce their tax burden, but multi-homeowners must pay taxes based on this year's official price, passing on the increase in burden.

This issue is not limited to Noryangjin 1 Zone. In Banpo Jugong 1 Complex in Seocho-gu, where reconstruction is underway, union members who owned medium-to-large single units have shifted their preference to receiving one medium-to-large new unit instead of two small units, reducing the apartment supply by 333 units. A union official from Noryangjin 1 Zone stated, "We cannot rule out the possibility of a reduction in the number of units, as seen in the Banpo Jugong 1 Complex case." The Noryangjin 1 Zone union plans to revise the redevelopment promotion plan within 'minor changes' after assessing demand during the union member pre-sale application.

Yeokyunghee, Senior Researcher at Real Estate R114, said, "As long as disadvantages for multi-homeowners continue, the trend to avoid 1+1 pre-sale will persist."

Noryangjin 1 Zone is located at 289-4 Noryangjin-dong, Dongjak-gu, Seoul, and is expected to supply 2,751 units (including 468 rental units) through redevelopment projects.

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