The real estate market is difficult to read, and so are government policies.
The outline of the tax reform plan to be announced at the end of this month is becoming clearer. Currently, three directions are being discussed. The property tax will increase through a higher fair market value ratio for the comprehensive real estate tax, while the capital gains tax will be restructured to focus on actual residence for long-term ownership special deductions. The emphasis on taxation will shift towards high-value, non-resident, and multi-homeowners. The trend is moving from a focus on the number of homes to considering home prices and actual residency. Although the plan is not finalized, statements from the President and the Blue House policy chief have clarified the direction.
A battle of words has begun. The government calls it 'normalization,' while the opposition labels it a 'tax increase,' arguing that it aims to suppress housing prices through taxation. Kim Yong-beom, the Blue House policy chief, stated on Facebook on June 20, "We need to normalize real estate taxation. It is necessary and correct to rationally adjust property and capital gains taxes," to which the People Power Party responded, "The essence is merely a preview of a tax increase aimed at the people's wallets" (Choi Bo-yun, senior spokesperson). On July 23, the President will engage in a public debate on real estate with citizens, turning this conflict into a nationwide broadcast. This word battle is essentially a fight over tax bills. In such cases, calculators are essential. Let's break it down one by one.
'Low property tax' claims need scrutiny.
President Yoon Suk Yeol stated during a press conference on his first anniversary in office on June 8, "Property taxes in our country are generally low. Therefore, there is not much burden even if one accumulates many properties." Is this statement accurate?
The answer varies depending on the denominator used. When looking at the effective tax rate based on property market value, South Korea's rate is 0.15%. This is half the OECD average of 0.33% and ranks 20th among 30 surveyed countries (Korea Land and Housing Corporation, 2022-2023). By this standard, the President's statement holds true. However, when considering property tax as a percentage of GDP, it stands at 1.0%, similar to the OECD average of 0.95%, and at 3.48% of total tax revenue, it exceeds the average of 2.85%. This discrepancy arises because the real estate asset size is large relative to the economy, while the overall tax burden is relatively low. Although the effective tax rate is low, the share of property tax in total tax revenue is not insignificant. Ultimately, the government cites the low effective tax rate, while the opposition points to the high revenue share.
On July 2, the OECD released a report on the South Korean economy, presenting another scorecard. The total real estate-related taxes amount to 3.0% of GDP, nearly double the OECD average of 1.6%, with property tax accounting for 29.4%, half of the OECD average of 56.0%. In contrast, transaction taxes such as acquisition and capital gains taxes make up 50.4%. In summary, South Korea's real estate taxes are not low; they are mismanaged.
It is crucial not to read the property tax increase in isolation. The OECD recommends changing the structure to tax heavily during transactions and relatively lightly during ownership. If property taxes are raised while leaving acquisition and capital gains tax burdens unchanged, it results in adding another layer rather than shifting the tax burden. If the government wants to call this 'normalization,' a reduction in transaction taxes must be included in the same calculation.
There is a clear aspect of 'restoration' in the reform.
Let's examine the fair market value ratio for the comprehensive real estate tax, which is considered a key tool in this reform. This ratio, which determines the tax base by multiplying the publicly announced price, was originally set at 80%. The Moon Jae-in administration raised it to 95%, and the Yoon Suk Yeol administration lowered it to 60% in 2022, where it has remained. The proposed '80% increase' is close to reverting to the original baseline of the system.
However, returning to the system's baseline does not mean that taxpayers' burdens will revert to their original levels. The publicly announced prices, home values, tax rates, and deduction conditions have changed since then. Even with the same 80%, if the publicly announced price multiplied by the tax base increases, the actual tax amount could be higher than in the past. For the government, it may be 'restoration,' but for those receiving the tax bill, it is undoubtedly an increase. This is where normalization and tax increases can coexist.
It is also true that taxpayers have experienced a rollercoaster ride. The property tax for an 84-square-meter unit in the Mapo Raemian Prugio, valued at around 2.5 billion won, dropped from about 5 million won in 2021 to around 2 million won in 2023-2025, before rising again to the mid-4 million won range this year. As tax rates and ratios have changed with different administrations, the tax on the same home has fluctuated by more than double over five years. The debate over what constitutes 'normal' is why this is contentious.
The calculation and the bill are not the same.
Before delving into the calculations, let's first consider who pays this tax. The comprehensive real estate tax applies to homes with a publicly announced price exceeding 1.2 billion won for a single household. Last year, the number of individuals subject to the comprehensive real estate tax was 481,000. As of the end of 2024, there are approximately 15.976 million individuals owning homes, meaning roughly 3 out of every 100 homeowners are affected. The number of people directly receiving tax bills is a small fraction of homeowners. Therefore, this tax cannot be labeled a 'nationwide tax bomb.'
So, how much will those three individuals pay? According to estimates from the National Assembly Budget Office, the comprehensive real estate tax for this year is expected to increase from 1.4763 trillion won to 2.8425 trillion won, nearly doubling, while the total property tax, including property tax, will rise from 8.6995 trillion won to 10.0658 trillion won. In Seoul alone, this represents a 21.1% increase. On the surface, these numbers could justify the term 'bomb.'
However, the calculation does not directly translate to the tax bill due to the tax burden cap. The current comprehensive real estate tax law stipulates that the total amount of property tax and comprehensive real estate tax cannot exceed 150% of the previous year's total tax amount. A simulation conducted by Woo Byung-tak, a specialist at Shinhan Bank, on ten major high-value single homes in Seoul showed that even if the ratio is raised to 80%, all would hit the cap. For example, the tax before applying the cap for an 84-square-meter Banpo Xi unit is 24.26 million won, but the actual bill is reduced to 18.43 million won.
If the cap remains unchanged, the entire calculated tax amount will not appear on the first year's bill. However, this does not mean there will be no shock. The amount can increase by up to 50% compared to the previous year's total tax amount. The excess over the cap does not carry over to the following year, but since the cap is recalculated annually, if the tax base and system remain unchanged, future tax bills could approach the calculated tax amount. Therefore, it is essential to observe whether the cap will be adjusted and, if so, how much it will be raised. During the Moon Jae-in administration, it was open to a 300% increase for multiple homeowners.
How will actual residence be determined?
There are also indications that a full tax increase is unlikely. The direction being discussed both inside and outside the government is to maintain or reduce the burden on mid-to-low-priced homes for actual residents while concentrating taxation on high-value, non-resident, and multi-homeowners. The President also stated in January, "I will avoid using taxes to control housing prices as much as possible," and emphasized that if someone has lived in a home for a long time, they should be protected. In June, he added, "Owning multiple homes is not a problem, but they should bear a corresponding burden." While interpretations of these statements may vary, it is clear that the policy's focus is shifting towards protecting actual residents and increasing burdens on non-residents and multi-homeowners.
The restructuring of the long-term ownership special deduction aligns with this direction. The President described this system on X (formerly Twitter) as a program that significantly reduces capital gains tax solely based on long-term ownership, regardless of residency. This indicates a shift in the benefits previously given for ownership towards residency.
The challenge lies in determining what constitutes actual residence. It must be decided whether to consider only the registered address or the actual duration of residence. Issues such as relocation for work, long-term business trips, family care, and periods when homeowners cannot occupy their homes due to redevelopment or rental disputes must also be addressed. Cases like weekend couples, where spouses work in different regions, complicate the distinction between registered and actual residence.
If the criteria are too narrow, unavoidable non-residency may be treated the same as speculative demand, while broad exceptions may make it difficult to prevent deceptive residency and formal address changes. Although the principle of protecting actual residents seems straightforward, it becomes complex when applied as a tax criterion. The criteria for protection, as well as the methods of proof and exceptions, must be clearly defined.
Both 'crackdown' and 'normalization' hold some truth.
Thus, the assessment is as follows. The government's term 'normalization' is only partially correct. It is true that the Yoon Suk Yeol administration is restoring previous measures and aligning with the OECD's recommendation to shift the tax burden from transaction taxes to property taxes. However, Douglas Sutherland, head of the OECD's country analysis division, has stated that such a transition should occur gradually over a considerable period. If the reduction in transaction taxes is omitted, the structural shift could devolve into an overall tax increase.
The opposition's term 'crackdown' is also only partially correct. As long as the tax burden cap and differential design remain in place, the entire calculated tax amount will not be reflected in the first year's bill. If mid-to-low-priced homes for actual residents are protected while concentrating burdens on high-value, non-resident, and multi-homeowners, it cannot be viewed as a uniform tax increase targeting all homeowners. However, if the fair market value ratio is raised along with an increase in the tax burden cap, or if property taxes are raised without reducing transaction taxes and if residency exceptions are narrowly defined, then the rhetoric will become reality.
Ultimately, what needs to be confirmed in the tax reform announcement is not just the tax rate figures but the three designs: whether to maintain the current tax burden cap, whether to lower transaction taxes while raising property taxes, and what criteria will be used to determine actual residence among registered addresses, actual residence duration, and unavoidable non-residency. Until these three aspects are clarified, both 'crackdown' and 'normalization' remain mere terms used by opposing factions.
* This article has been translated by AI.
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