Kim Yongbeom Raises Property Tax Issue... 80% Fair Value Ratio Has Limited Impact in Gangnam [Real Estate AtoZ]

Tax Burden Cap of 150% Actually Reduces Taxes

Raising the Cap to 200% Needed for Real Impact

Strong Resistance Expected if Applied to Single-Home Owners for the First Time

Retroactive Application Could Spark Controversy Depending on Timing

As Kim Yongbeom, the policy chief at the Blue House, publicly mentioned raising real estate taxes, attention is now focused on the timing and scale of the potential tax burden increase. Alongside discussions on revising tax laws, there is a growing likelihood that the government will also consider raising the fair market value ratio for the Comprehensive Real Estate Holding Tax (commonly referred to as the "Comprehensive Real Estate Tax") through amendments to enforcement decrees, which could increase the tax burden. However, if the current upper limit for tax burdens is maintained, raising the fair market value ratio would have only a limited impact on the Comprehensive Real Estate Tax.

'Upper Limit of 150%' Neutralizes 80% Fair Market Value Ratio

According to a simple simulation conducted by The Asia Business Daily on June 22, based on a request to Woo Byungtak, a specialist at Shinhan Bank's Shinhan Premier Pass Finder, the property holding taxes (property tax and Comprehensive Real Estate Tax) for 10 major high-priced single-home properties in Seoul were calculated using the 2026 official apartment price inquiry figures. If the fair market value ratio for the Comprehensive Real Estate Tax is raised from the current 60% to 80%, all 10 properties would hit the statutory upper limit for tax burdens.

Even if the calculated tax amount increases, the effect of the tax hike is curbed by the tax burden cap, which stipulates that the actual amount payable cannot exceed 1.5 times the previous year's amount (150%). This simulation used a fair market value ratio of 45% for property tax, which applies to single-home households with an assessed value exceeding 600 million won, and did not reflect deductions for seniors or long-term ownership. The actual tax amount may vary depending on the final officially announced prices.

The fair market value ratio is the percentage applied to the official price when determining the Comprehensive Real Estate Tax base. The government can adjust this ratio within a range of 60% to 100% through a revision of the enforcement decree alone.

Woo Byungtak explained, "If you calculate based on the assumption that the fair market value ratio is raised to 80%, you end up hitting the tax burden cap, so the answer is the same: 150%." The tax burden cap is a system that reduces any excess so that property holding taxes do not rise steeply within a single year. However, the base amount for the cap is not the actual tax paid the previous year, but rather an amount recalculated according to statutory methods. Even if this year's cap results in a lower tax bill, that lower bill does not necessarily become the base for next year's cap calculation.

For example, a single-home owner at Acro River Park in Banpo-dong, Seocho-gu, with an exclusive area of 84 square meters, would see their statutory holding tax calculated at 29.62 million won if the fair market value ratio is raised to 80%. However, due to the legal safeguard that limits annual tax increases—known as the "tax burden cap" (150%)—the final amount billed would be reduced to 22.84 million won. Thanks to the cap, the owner would pay 6.78 million won less.

Similarly, for an 84-square-meter unit at Banpo Xi in the same area, the amount before the cap would be 24.26 million won, but the actual bill would be reduced to 18.43 million won—a reduction of 5.83 million won. At Raemian Daechi Palace in Daechi-dong, Gangnam-gu, the holding tax before the cap would be 20.37 million won, but it would be capped at 15.07 million won, a decrease of 5.3 million won. For Eunma Apartment (84 square meters), the amount before the cap would be 13.74 million won, but the actual tax bill would be 10.04 million won, a reduction of 3.7 million won.

The difference was even greater for ultra-high-end properties. For a 235-square-meter unit at Hannam The Hill in Yongsan-gu, the calculated tax at an 80% fair market value ratio would be 105.7 million won, but with the current cap applied, the actual amount due would be 87.32 million won. Due to the tax burden cap, 18.38 million won would not be reflected in the billed amount.

"Raising the Cap to 200% Is Inevitable" vs. "No Precedent for Single-Home Owners"

As a result, there is speculation that the government might raise the tax burden cap itself to achieve a more substantial tax hike effect. Park Hapsu, adjunct professor at Konkuk University's Graduate School of Real Estate Studies, said, "If the tax burden cap is set at 150%, no matter how much the official price or ratio increases, the government can only collect 50% more in taxes. If the government wants to increase property holding taxes by more than 50%, the likelihood of raising the cap from the current 150% to 200% is high." On the other hand, there are counterarguments that raising the cap is excessive given the potential for tax resistance. Woo Byungtak explained, "In the past, the 200% cap only applied to multi-home owners in regulated areas, and there has never been a case where the cap for single-home owners exceeded 150%. Changing the tax base, tax rate, or cap would be a significant undertaking, so it is unlikely the government will do so lightly."

Opinions are also divided regarding the timing of a possible increase in the fair market value ratio. The tax base date that determines who is liable for the Comprehensive Real Estate Tax is June 1, but the actual process of preparing tax bills begins in September. Professor Park noted, "Although the tax base date has passed, since applications to exclude certain properties from the Comprehensive Real Estate Tax are accepted and tax bill preparations ramp up from September, if the enforcement decree is revised by the end of August, a tax increase could be implemented for this year's taxes. For example, after the Yoon Suk Yeol administration announced plans to lower the fair market value ratio in June 2022, the enforcement decree was amended in July, and the 60% ratio was applied to that year's Comprehensive Real Estate Tax." Conversely, Woo Byungtak pointed out, "If the system is changed in a way that is disadvantageous to taxpayers, it could spark constitutional controversy regarding retroactive application."

There is also an outlook that the government may actually adjust both the fair market value ratio and the official price realization rate in tandem to control the magnitude of the tax burden increase. This year, the average realization rate for official apartment prices was frozen at around 69%. The government could slightly raise the realization rate to around 71% in the second half, and then adjust the fair market value ratio stepwise—to 65% or 70%, for example—while examining how the property holding tax increases in each region. Woo Byungtak said, "The government will likely run simulations based on market trends in the second half. They may partially adjust the official price realization rate and raise the fair market value ratio to 65% or 70%, calculating the increase in holding taxes for Gangnam and other areas before making a final decision."

This content was produced with the assistance of AI translation services.