"Inconsistent Real Estate Taxation Fails to Curb Housing Prices and Undermines Policy Credibility"

National Assembly Forum on "Directions and Issues in Real Estate Tax Reform"

There have been criticisms that frequent changes to the real estate taxation system with each change of administration have undermined the effectiveness of policy. Real estate has become a key asset of interest for members of Korean society, yet the lack of consistency in the tax system is seen as reducing both predictability and taxpayer acceptance.

Professor Lee Dongsik of Kyungpook National University School of Law said at a forum titled "Directions and Issues in Real Estate Tax Reform," hosted on July 20 by the Dongcheon Foundation and others, "Looking back at the history of our real estate taxation, there has never been a system that lasted even 10 years. That is why market participants do not trust the government and tend to disregard its policies."

According to materials compiled by Professor Lee, since the 1960s, when land and housing prices began rising rapidly in modern Korea, various tax schemes have been introduced. In 1968, due to the construction of the Gyeongbu Expressway and development in Gangnam, land prices soared by over 50% in just one year; in response, the Real Estate Speculation Restraint Tax was enacted. Around 1978, as the market became unstable, the government raised the capital gains tax rate for buildings to match that for land, and started imposing heavy taxes for transfers or unregistered resales within two years. This is considered the first case where the government responded to the housing market with tax measures.

A property tax notice posted at a real estate agency in Jamsil, Songpa-gu, Seoul. Photo by Yonhap News Agency

Subsequently, the government introduced various tax measures in response to market conditions, such as the Excess Land Ownership Tax in 1986 and policies to stimulate housing demand in 1997. The repeated strengthening and relaxation of the Comprehensive Real Estate Holding Tax, introduced in 2005, along with differentiated capital gains taxes depending on the number of properties owned, were also examples Professor Lee cited of government intervention in the real estate market through the tax system.

Professor Lee commented, "Because tax law revisions are often rushed, they tend to lack sophistication. Those with multiple properties can usually avoid negative effects with expert help, but ordinary people often suffer from poorly designed laws." He noted that controversies have arisen over issues such as the tax exemptions for owners of two homes in designated zones and family-based aggregation of the Comprehensive Real Estate Holding Tax. He also pointed out that excessive tax burdens frequently lead to taxpayer resistance.

Professor Park Hoon of the University of Seoul explained, "One lesson from the past is that when property taxes are used as short-term economic or political tools, taxpayer predictability and confidence in the system are damaged." Professor Park also noted there are ongoing debates over the dual tax system of property tax and Comprehensive Real Estate Holding Tax, controversy over the assessment standards such as announcing market values or fair market ratios, and the taxation of unrealized gains.

Professor Lee Joongkyo of Yonsei University School of Law remarked, "When the real estate market is hot, the government has raised capital gains tax rates, and when it is sluggish, it has offered tax cuts. Taxes have been used as a core policy in real estate, but ultimately, we have seen that taxation alone has its limits in stabilizing housing prices."

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