[Yoon Administration Economy] Raising the Comprehensive Real Estate Tax Threshold for Single-Homeowners from 1.1 Billion to 1.4 Billion Won

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Reduction of Fair Market Value Ratio for Property Tax and Comprehensive Real Estate Holding Tax

Temporary Introduction of KRW 300 Million Special Deduction for Comprehensive Real Estate Holding Tax

First-time Homebuyer LTV Cap Relaxed to 80% Regardless of Region, Number of Houses, or Income

[Asia Economy Reporter Kim Min-young] The government has decided to lower the fair market value ratio to reduce the burden of holding taxes and raise the comprehensive real estate holding tax threshold for single-home households from KRW 1.1 billion to KRW 1.4 billion. The loan-to-value (LTV) cap for first-time homebuyers will be relaxed to 80% regardless of region, housing price, or income, and the loan limit will be expanded to KRW 600 million.

On the 16th, the government announced the "New Government Economic Policy Direction" containing these measures. The new government's real estate policy for next year is summarized as stabilizing housing for ordinary citizens through expanded housing supply and tax system reform.

First, reflecting the increased holding tax burden due to recent house price rises, the government decided to adjust both holding taxes and transaction taxes. As a measure to reduce property tax for single-home households, the fair market value ratio used as the tax base will be lowered from 60% to 45%. This is a follow-up measure to the plan announced in May to restore the tax burden caused by the 2022 official property price increase to the 2020 level.

Regarding the comprehensive real estate holding tax, a temporary special deduction of KRW 300 million will be introduced this year for single-home households. Accordingly, the tax base threshold for single-home households will be expanded from KRW 1.1 billion to KRW 1.4 billion. The fair market value ratio will also be lowered from 100% to 60%. The fair market value ratio is the rate applied to determine the tax base when imposing taxes; the tax base is calculated by multiplying the official property price by this ratio. Therefore, the lower this ratio, the lower the tax base and the tax burden. This ratio is set to rise to 100% this year but will be lowered to around 60% to reduce the comprehensive real estate holding tax burden to the 2020 level.

According to a simulation released by the Ministry of Economy and Finance on the change in comprehensive real estate holding tax burden when applying a 60% fair market value ratio and introducing a KRW 300 million special deduction for single-home households, a homeowner with a property priced at KRW 1.283 billion would originally have to pay KRW 2.572 million in comprehensive real estate holding tax this year, but the tax burden will be reduced to KRW 694,000. For a homeowner with a property priced at KRW 2.2 billion, the tax burden will decrease from KRW 10.57 million to KRW 3.96 million under this relief measure.

Additionally, in cases of unavoidable reasons such as elderly long-term holders deferring payment and temporary two-home ownership due to inheritance, these properties will be excluded from the count when calculating the number of houses for comprehensive real estate holding tax purposes. This will apply from the tax notices sent in November this year. The government plans to finalize the holding tax reform plan, including tax rate reductions to appropriately lower the holding tax burden, by July.

The government is also temporarily implementing a one-year suspension of capital gains tax surcharges from May 10 to encourage multi-homeowners to list properties and activate housing transactions. The disposal period for previous homes for temporary two-homeowners to qualify for capital gains tax exemption, non-taxation, and acquisition tax surcharge exclusion has been extended from one year to two years to prevent disadvantages when switching homes.

On the supply side, the government plans to prepare a roadmap for supplying more than 2.5 million homes by year and region and announce it within the third quarter. It will also finalize and announce this month the reform plan for the price ceiling system to promote urban housing supply.

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The financial sector focuses on helping real demand buyers purchase homes through the gradual normalization of loan regulations. The first-time homebuyer LTV cap will be relaxed to 80% regardless of region, housing price, or income, and the loan limit will be expanded from KRW 400 million to KRW 600 million within the third quarter. Previously, first-time homebuyers had to meet conditions such as a speculative overheated district price cap of KRW 900 million, a regulated area price cap of KRW 800 million, and an income requirement (combined couple income of KRW 100 million) to qualify for loans.

The government will also improve the method of reflecting future income in the debt service ratio (DSR) calculation within the third quarter to more accurately reflect borrowers' income flow during the repayment period. The improvement will change from averaging income at loan origination and maturity to averaging income flows by age group from loan origination to maturity.

Measures to stabilize the monthly rent and lease market were also announced. The government plans to timely supply about 30,000 construction-type public rental homes, about 10,000 purchased rental homes, and about 20,000 jeonse (long-term deposit lease) rental homes scheduled for tenant recruitment after this month. Additionally, before the sequential expiration of the contract renewal request right in August, the government will prepare and announce measures to stabilize the monthly rent and lease market within this month.

The government will hold the "1st Real Estate Related Ministers' Meeting" this month to finalize and announce the "Lease Market Supplementary Measures" and "Sectoral Third Quarter Normalization Tasks."

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