Ruling Party Forum on Holding Taxes: "Hard to Stabilize Home Prices Without Tax Reform" [Real Estate A to Z]

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A claim emerged from the ruling party on the 23rd that it will be difficult to stabilize housing prices without a tax reform that strengthens real estate holding taxes. With the end of the temporary suspension of heavy capital gains taxation on multi-homeowners scheduled for May 9, the party has brought the issue of "normalizing holding taxes" into the public debate.

Jin Sungjun, a lawmaker of the Democratic Party of Korea who serves on the National Assembly Strategy and Finance Committee, stated this in his opening remarks at a National Assembly roundtable titled "The Paradox of Owning One Prime Home: Measures to Normalize Real Estate Taxation," which he co-hosted that day with Yoon Jongo, Floor Leader of the Progressive Party and member of the National Assembly’s Land, Infrastructure and Transport Committee; Son Sol, lawmaker of the Justice Party; and People’s Solidarity for Participatory Democracy. He said, "Discussions on normalizing real estate taxation, including holding taxes, are more urgent than ever." He went on, "The Lee Jaemyung administration has consistently expressed its determination to end the republic of unearned real estate income," adding, "We must show the market that in taxation, principles take precedence over exceptions if we are to restore trust in policy."

During the roundtable, Oh Gihyung, a Democratic Party lawmaker on the Strategy and Finance Committee, also dropped by the venue without prior notice. Oh, who said he had stopped in after seeing the topic while passing by, remarked, "There is an ongoing debate over how far we should intervene in the real estate market through taxation," and added, "Ultimately, from the perspective of normalizing what is abnormal, removing excessive tax benefits is a position that is logically coherent in discourse and can gain social acceptance." The fact that a ruling-party lawmaker from the relevant standing committee stopped in underscores how hot an issue holding taxes have become even within the party.

Im Jaeman, a professor at Sejong University, is speaking at a roundtable titled "The Paradox of Owning One Prime Home: Measures to Normalize Real Estate Taxation," held on the 23rd at the National Assembly Members' Office Building in Yeouido, Seoul. Photo by Choi Seoyun

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Lim Jaeman, a professor at Sejong University and an executive member of the People’s Solidarity for Participatory Democracy’s Center for Hopeful Living, proposed a direction for real estate tax reform, saying, "Transaction taxes should be lowered and holding taxes should be raised."

Regarding the capital gains tax exemption threshold for single-home households (a transfer value of 1.2 billion won or less), Professor Lim asked, "Why 1.2 billion? On what basis was that set?" and argued, "It should be made objective as a certain multiple of the median price. The current median price is about 400 million won, so if you double it, that is 800 million won." The capital gains tax exemption threshold for a single-home household was previously 900 million won and was raised to 1.2 billion won in 2021.

On holding taxes, he said, "If the tax base is properly set, tax revenue can be increased without raising the tax rate." He proposed adjusting the officially assessed value to 80% of market value and gradually abolishing the fair market value ratio. He added that, over the long term, the comprehensive real estate holding tax should be integrated into the property tax. By increasing the number of property tax brackets and applying a progressive tax rate to homes priced above the median, "we can achieve the same economic effect as the comprehensive real estate holding tax while eliminating the controversy over double taxation," he argued.

Professor Lim said, "Even though the heavy capital gains tax on multi-homeowners was excluded for four years, properties did not come onto the market. Since holding taxes were also lowered, there is no reason for them to sell," adding, "During the Moon Jaein administration, the comprehensive real estate holding tax was raised and properties were about to come out briefly, but it was quickly lowered again. We have never truly raised holding taxes properly."

He argued that the taxation standard should be shifted from the number of homes to the value of homes and that progressive tax rates should be strengthened. "The standard based on the number of homes stems from a political philosophy of regulating multi-homeowners, but from a tax perspective, the value of the property reflects the taxpayer’s ability to pay," he said. He added that land and buildings should be taxed separately, with a higher tax rate (progressive by bracket) on land than on buildings (a single proportional rate).

On capital gains tax, Professor Lim said, "Every detail has been designed to reduce taxes," and argued that, in the long term, capital gains should be included in comprehensive income tax, while benefits for single-homeowners should be restructured around actual residence requirements such as long-term residence and lifetime caps on capital gains.

He said that the exclusion of registered rental business operators from the application of heavy capital gains tax "should preferably be abolished after a grace period." President Lee Jaemyung also suggested a phased abolition earlier this month on social media, asking, "Is there any need to grant permanent preferential treatment even after the mandatory rental period has ended?" For multi-homeowners, he argued that registration should be made mandatory and that tax benefits should be granted based on the holding period, but that once the business is terminated, capital gains tax should be imposed at the normal rate.

The long-term holding special deduction, which President Lee Jaemyung has recently criticized in public, was also discussed. Lee Seonhwa, Senior Research Fellow at the National Assembly Futures Institute, said of the long-term holding special deduction (up to 80%), "Although it appears nominally to protect genuine end-users, in reality it creates a lock-in effect by reducing moves and mobility and freezing residence in order to obtain tax benefits." She pointed out that excessive benefits block the circulation of housing in prime locations and lead to inefficiencies in resource allocation.

Lee presented simulation results showing that the tax burden on a single-homeowner who realizes 1 billion won in capital gains over 10 years is only 0.5-6.1%, whereas a wage earner who earns the same 1 billion won over the same period must pay 11.2-35.0%. She argued, "This gap must be corrected if we are to resolve the problem of the 'one strategic home.'"

Participants pose for a commemorative photo at a roundtable titled 'The Paradox of a Strategic Single Home: Measures to Normalize Real Estate Taxation,' held on the 23rd at the National Assembly Members' Office Building in Yeouido, Seoul. From left: Yoon Suhyun, Director of the Property Taxation Division, Ministry of Economy and Finance; Kim Wonjang, host of Sampro TV; Lim Jaeman, Professor at Sejong University; Jung Seun, Professor at Chungnam National University; Yoon Jongo, Floor Leader of the Progressive Party and member of the National Assembly's Land, Infrastructure and Transport Committee; Kim Hyundong, Professor in the Department of Business Administration at Paichai University; and Lee Seonhwa, Senior Research Fellow at the National Assembly Futures Institute. Photo by Choi Seoyoon

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Kim Wonjang, a former journalist and host of Sampro TV, noted, "The property tax on an apartment with a market value of 2 billion won is about 3.7 million won, which translates into an effective tax rate of only 0.19%." On a monthly basis, that is about 300,000 won, meaning there is virtually no holding burden and thus no reason to sell. Regarding the phenomenon of people aged 65 and older holding housing in prime areas of Seoul, he said, "This is not because they are speculative, but because it is a rational choice under market economy principles," adding, "Holding taxes are low, and there are even deductions for long-term holding and for seniors, so it is advantageous to keep the home even when income declines. This structure must be broken."

Kim Hyundong, a professor at Paichai University, said, "Numerous studies confirm a negative correlation between increases in holding taxes and housing prices," and added, "The burden of property tax tends to fall largely on capital owners, so the claim that it is passed on to tenants is not empirically supported." On the structure of full capital gains tax exemption for single-homeowners, he pointed out, "In the United Kingdom, the actual residence requirements are far stricter, to the extent that you must never have rented out the home to receive the exemption. In Korea, we grant exemption if you have lived there for just two years."

Yoon Suhyun, Director of the Property Taxation Division at the Ministry of Economy and Finance, said, "There are parts of the real estate tax system that have become a patchwork," and added, "We basically believe that the direction of lowering transaction taxes and raising holding taxes is correct." On the issue of using the number of homes versus property value as the criterion, he said, "When we compare two low-priced homes in a provincial area with one ultra-high-priced home in a prime location, questions of fairness are raised," adding, "I think it is time to discuss these aspects as well."

The roundtable was held after President Lee Jaemyung confirmed the end of the temporary suspension of heavy capital gains taxation on multi-homeowners. Once the suspension ends, owners of two homes in designated speculative areas will face an additional 20 percentage points on top of the basic tax rate, and owners of three or more homes will face an additional 30 percentage points, while the long-term holding special deduction will also be excluded. As the results of an ongoing research project by the Ministry of Economy and Finance on adjusting holding and transaction taxes could be reflected in the tax law revision bill in the second half of this year, discussions on reforming holding taxes are expected to intensify after the end of the temporary suspension of heavy capital gains taxation.

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