The government is expected to undertake a comprehensive overhaul of the real estate tax system, addressing both property ownership and disposal stages. The comprehensive real estate tax and capital gains tax benefits, which have been broadly applied to single-homeowners regardless of property value, are likely to be re-evaluated.
To mitigate the concentration of investment demand in high-value single homes, known as the 'one good house' phenomenon, the government is considering increasing the tax burden on high-value single-homeowners and imposing limits on the number of times or amounts eligible for capital gains tax exemptions for single-homeowners.
According to government and real estate industry sources on July 26, the government is preparing detailed proposals for property taxes and capital gains taxes ahead of a tax reform announcement scheduled for early next month. President Lee Jae-myung emphasized during a national discussion on real estate policy on July 23 that future policy design should focus on clarifying the targets for property taxes, the levels of increases, and the differential methods of application.
In the medium to long term, the reform is expected to protect typical residential single-homeowners while imposing heavier tax burdens on high-value homes, non-residential properties, and multiple-homeowners. The current system, which has differentiated tax burdens solely based on the number of homes owned, will be restructured to reflect the value and intended use of the properties.
A basic tax burden will be established based on typical home prices, with potential adjustments based on actual residency, property value, intended use, and location. This approach aims to alleviate the burden on low- and middle-income single-homeowners and regional properties while applying heavier weights to luxury and high-value homes, as well as non-residential properties held for investment.
If the government implements this differential taxation, significant changes to the current comprehensive real estate tax calculation system are anticipated. The tax system is expected to shift from being based on the number of homes owned to the total assessed value of the properties, which could increase the tax burden for high-value single-homeowners while altering the burden structure for those owning multiple lower-value homes.
Currently, the comprehensive real estate tax provides a basic exemption of 120 million won for single-homeowners and 90 million won for other individuals. The structure applies different tax rates based on the number of homes owned, meaning that the number of properties held has a significant impact on the tax rate.
Long-term holding and senior citizen tax deductions for single-homeowners are also expected to be key issues in the reform. Under the current system, single-homeowners who meet the long-term holding and senior citizen criteria can receive a reduction of up to 80% of the calculated tax amount. Even with the same deduction rate, the actual reduction amount increases with higher property values.
As a result, there may be proposals to set a cap on deductions for high-value single homes or to lower the deduction rate for properties that are not actually occupied. Discussions are also expected to focus on more stringent requirements for residency duration in the deduction criteria. However, there are concerns that the process of finely dividing deduction targets could complicate the system excessively and increase disputes between taxpayers and tax authorities.
Significant changes are also anticipated for capital gains taxes imposed when selling a home. During the recent discussion, proposals were made to limit the capital gains tax exemption for single-homeowners to once in a lifetime or to impose a cap on the total amount eligible for lifetime exemptions. President Lee acknowledged that the current structure, which provides unlimited benefits, may have issues and indicated the need to consider limits on the number of times or amounts eligible for exemptions.
Currently, single-homeowners are generally exempt from capital gains tax on sales of up to 1.2 billion won if they have owned the property for more than two years. If the property was in a designated adjustment area at the time of acquisition, they must also meet the two-year residency requirement. Once the criteria are met, homeowners can receive the exemption each time they change homes, with no limit on the number of times.
However, there is strong opposition to uniformly limiting the number of tax-exempt transactions, as it could hinder normal residential mobility. Critics argue that it could excessively restrict citizens' housing rights by suppressing the demand for moving based on life cycles.
Concerns have also been raised about potential side effects that could lead to increased demand for larger homes. If opportunities for tax exemptions are limited, actual demand may concentrate on higher-priced, larger properties. This could paradoxically exacerbate the 'one good house' phenomenon that the government aims to curb.
Experts warn that without a nuanced distinction based on ownership purpose and tax capacity, a blanket increase in taxation could repeat past issues of property lock-up and concentration in key areas. Lee Eun-hyung, a researcher at the Korea Construction Policy Institute, stated, "If measures to suppress demand, such as increased property taxes, transaction taxes, and loan regulations, are strengthened, transactions may shrink, but housing prices are influenced by various factors such as supply, location, and liquidity, making short-term price stabilization uncertain. In particular, if property taxes are raised without addressing transaction taxes, property lock-up could worsen, necessitating a balanced tax design that considers both ownership and transactions."
* This article has been translated by AI.
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