'Number of Houses'-Based Comprehensive Real Estate Tax Drives Market Polarization... Experts Say "It Should Be Changed to Property Value" (Comprehensive)

Real Estate Taxation Forum Held on the 16th
Over 60 Participants Including Deputy Prime Minister Koo and Diverse Stakeholders
Experts Emphasize "Protection for Actual Residents and Tax Fairness"

At the final nationwide forum organized to gather public opinions on real estate policy, a wide range of suggestions on reforming real estate taxation were raised. Many experts recommended that the current comprehensive real estate tax (CRE tax) system, which is based on the number of housing units, should shift to a standard based on the value of the properties. There were also assertions that the long-term ownership special deduction for capital gains tax (CGT) should be redesigned to focus on actual occupancy rather than simply the length of holding period.

On July 16, the Ministry of Economy and Finance held the "Public Opinion Hearing on Real Estate Taxation" at the Bankers Hall in Myeongdong, Jung-gu, Seoul. Scheduled ahead of the "Grand Real Estate Debate"—which President Lee Jaemyung plans to attend on the 23rd—this was the last of a series of forums held by respective ministries following the Ministry of Land, Infrastructure and Transport (supply) and the Financial Services Commission (loans). Deputy Prime Minister and Minister of Economy and Finance Koo Yoon-chul, along with some 60 participants including academia, experts, construction industry representatives, and members of the general public, attended the event.

On the 12th, amidst the rise in apartment prices and the shortage of monthly rent and lease, the sale and monthly rent prices of villas are increasing and the transaction volume is rising, showing the villa complexes in Seoul city. Photo by Yonhap News

"'Comprehensive Real Estate Tax Based on Number of Properties Exacerbates Market Polarization... It Should Be Shifted to Property Value"

Kang Sung-hoon, professor of policy studies at Hanyang University and keynote speaker on the topic "Current Status and Issues in Designing a Rational Real Estate Tax Policy," emphasized, "Since 2016, consumer prices have risen by 25%, but apartment prices in Seoul and southeastern Seoul have soared by 131% and 166%, respectively." He stressed the importance of well-designed policies to rationalize real estate taxation, given the persistent challenge of soaring home prices.

The main discussion points of the forum revolved around identifying the right direction for reforming the comprehensive real estate tax and CGT. For the comprehensive real estate tax, major issues included: tax base (number of properties vs. property value), increased taxation on ultra-high-priced properties, defining the threshold for such properties, differential taxation for owner-occupied versus non-occupied homes, and the intended use of increased revenues.

Deputy Prime Minister and Minister of Economy and Finance Koo Yoon-chul (third from right) and attendees are applauding at the "Public Hearing on Real Estate Taxation" held on the 16th at the Bankers' Hall in Jung-gu, Seoul. Photo by Yonhap News

Ham Young-jin, head of the Real Estate Research Lab at Woori Bank, argued that the comprehensive real estate tax base should be shifted to property value. He pointed out, "Currently, someone who owns a single property valued at 1 billion won for official reporting purposes can pay more than twice the tax of someone who owns two properties totaling the same value. This creates a preference for owning one highly valued property, especially in the capital region, so taxing based on property value is more appropriate."

However, Ham cautioned that drastic changes could create various side effects. He said, "If real estate taxation becomes excessively stringent beyond market tolerance, we could see a drop in transaction volume due to properties being held off the market, a shortage of rental inventory, and the transfer of tax burdens to tenants through higher rents." He suggested, "For the tax reform proposal, it would be reasonable to raise the fair market value ratio to around 60% for property tax and 80% for comprehensive real estate tax for holding taxes, while eliminating unnecessary deductions." Ham also recommended that the special long-term holding deduction for single-home owners should be revised to place more emphasis on actual occupancy to better protect genuine end-users.

Oh Jong-hyun, Head of the Tax Research Division at the Korea Institute of Public Finance (KIPF), echoed this sentiment, stating, "It is more equitable to use property value rather than the number of properties as the tax base." He further argued for clearly distinguishing homes for actual residence from those for investment when applying the tax. "Under the current system, homes are simply classified as 'one household, one residence,' which has caused a lot of problems," Oh said, adding, "Overall, the tax burden for owner-occupied homes should be lowered, while raising it for non-resident homes."

Nam Ki-up, Director of the Land Freedom Research Institute, also remarked, "I believe using the combined value of owned properties rather than the number of properties is preferable." However, he proposed that simply strengthening the comprehensive real estate tax could spark controversy over punitive taxation, so the entire property tax structure should be reformed together. He said, "As President Lee Jaemyung has suggested, lowering expected investment returns through taxation is crucial to solving real estate speculation, and the currently low holding tax—which is about one-fifth of comparable benchmarks—should be universally increased." Nam also expressed the view that the tax deduction for single-home owners should be abolished regardless of whether they reside in the property.

There were also arguments that even for single-home owners, holding taxes must be increased for ultra-high-priced homes. Lee Kwang-soo, CEO of real estate research firm Kwangsoonebokdeokbang, criticized, "The comprehensive real estate tax rate has been too low, so speculative investors aren't deterred and thus the tax hasn't performed its corrective function. Frequent changes to the tax rate with every government change have severely undermined trust in the tax system."

"Long-Term Occupancy Deduction for Capital Gains Tax Should Be Revamped to Focus on Ten Years or More of Actual Residence"

The subsequent session on capital gains tax focused heavily on the long-term special deduction. Most insisted that the system should be redesigned to give priority to actual occupancy over just the length of ownership. Shim Choong-jin, professor of business administration at Konkuk University, commented, "Offering a 40% deduction just for holding properties has fueled speculative demand for housing." He added, "The deduction based simply on holding period should be abolished and replaced with a special deduction for long-term actual occupancy, limited only to cases of over ten years of residence."

Oh also remarked, "As the capital gains tax is essentially a capital gains tax, not a transaction tax, it should follow the principle of taxing capital gains. One-owner households with actual residence should be exempt from CGT to guarantee freedom of movement, but for transfer of investment property, taxes should be strictly enforced." He added, however, "There remains a question as to whether freedom of movement should be guaranteed even for luxury homes; it would be better to have a cap or some means of control."

There was also a perspective that, if holding taxes are to be raised, trading taxes should be lowered to prevent rigidity in the real estate market. Ham noted, "After the capital gains tax surcharge was implemented in Seoul, the number of properties on the market dropped from 80,000 to 60,000 units, and rental availability fell by 14% year-on-year. If holding taxes are to increase, the capital gains tax rates for multi-home owners in regulated areas should be lowered to relieve the transaction tax burden."

Deputy Prime Minister and Minister of Economy and Finance Koo Yoon-chul is attending the 'Real Estate Tax System Public Opinion Listening Forum' held at the Bankers Hall in Myeongdong, Seoul, on the 16th. Photo by Yonhap News Agency

Meanwhile, in his opening remarks at the forum, Deputy Prime Minister Koo said, "A house, at its core, is a place to live, yet some treat it as a thing to buy. It is difficult to say that the government has never supported home purchases, but we must ask whether this support is appropriate." He continued, "There are several issues to consider—whether the comprehensive real estate tax should be based on the number of homes or their value, whether to differentiate tax treatment for owner-occupied and non-occupied homes, and whether to strengthen taxation on ultra-high-priced homes. For the long-term residence deduction, another issue is whether to reduce benefits for non-occupied and luxury properties. The government has not arrived at any predetermined answers and has organized this event specifically to hear from the public. We will carefully consider the various opinions raised today and faithfully reflect them in future real estate policies and tax reforms."

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