Complex Calculations for High Net Worth Individuals Following Real Estate Tax Reform... Large Officetels Gain an Edge with Lower Holding Costs

August 3 Tax Reform Plan Signals Adjustment of Holding Tax Burden for Ultra-High-Priced, Non-Residential, and Multi-Homeowners

Seoul apartment panoramic view, Source=Clipart Korea

With the government introducing a phased tax reform plan to adjust the comprehensive real estate holding tax burden for ultra-high-priced, non-residential, and multi-homeowners, buyers in Seoul's high-end housing market are increasingly considering "holding costs" as a key factor, as important as the purchase price itself, when making decisions.

Currently, transactions for apartments exceeding 3 billion won are taking place one after another in Seoul's prime residential districts. For those planning to hold high-priced homes long-term, not only the purchase price but also taxes, maintenance fees, and finance charges incurred throughout the holding period are important criteria. Especially with similar pricing and floor area, annual property holding taxes can vary depending on the assessed value subject to taxation, fueling active comparisons between different types of residential products.

◆ Adjustment of Ultra-High-Priced Housing Taxes Announced... Complex Calculations for High Net Worth Individuals

The government's “2026 Tax Reform Plan” announced on August 3 focuses on reorganizing the comprehensive real estate tax and capital gains tax systems, centering on primary residence. While protecting single residential homes, the plan calls for a phased adjustment in tax burdens on homes exceeding a certain value, non-residential homes, and multiple-homeowners. However, this is still a government proposal that has yet to go through the National Assembly's review, and details or the implementation timeline could change after legislative notice, Cabinet meetings, and further deliberations in the National Assembly.

According to the reform plan, the base market value subject to comprehensive real estate tax for a single household single home will be raised from a publicly assessed price of 1.2 billion won to 1.4 billion won. Based on the market price estimates provided by the government, this means comprehensive real estate tax will not apply for homes up to approximately 2 billion won. On the other hand, non-residential single homeowners will face reduced basic deductions, and for multiple-homeowners, the deduction amount will vary depending on the proportion of homes used as the primary residence.

The tax rates for high-priced homes will also be revised. As the comprehensive real estate tax system is restructured to focus more on home value than the number of properties owned, the holding burden for ultra-high-priced properties exceeding a certain value may increase. If the reform plan passes the National Assembly as scheduled, the new tax system will be applied in stages over two years starting from 2027.

In Seoul's prime residential districts, including Gangnam, Yongsan, Seongdong, and Yangcheon, apartment prices are rising, as are their official assessed values. As increases in home prices are reflected in the officially assessed value, the overall burden of property tax and comprehensive real estate tax can rise at the same time, making calculations increasingly complex for high-value property owners.

◆ For 3 Billion Won Apartments and Residential Officetels, a Nearly Fivefold Difference in Holding Tax

Against this backdrop, the difference in tax bases between apartments and residential officetels is drawing attention. Even for residential products with similarly high prices and usable floor area, whether the property is classified as an apartment or a residential officetel determines the market standard price used as a basis for both property tax and comprehensive real estate tax, and these standards can differ significantly.

For apartments, holding tax is calculated based on the official collective housing price announced by the Ministry of Land, Infrastructure and Transport. In contrast, for officetels, the taxable value is determined by the standard building value announced by local governments, combined with the land value based on the officially declared land price. This produces a structure where taxable values can differ even when actual transaction prices are similar.

Based on the assessed market standard value for key high-end residential products in Seoul, and assuming identical holding conditions (single-homeowner, primary residence), a simple comparison reveals that an apartment in southwestern Seoul with a market price of about 3.7 billion won has an estimated annual holding tax of approximately 11 million won. In contrast, a residential officetel with a market price of about 3.4 billion won incurs only about 2 million won in annual holding tax. For residential officetels, the market standard value typically sits at only 20-30% of the actual market price, resulting in nearly a fivefold difference in holding taxes despite similar price ranges.

One of the main reasons for such disparities in tax amounts is whether the difference in market standard value results in comprehensive real estate tax being levied. In the above case, the apartment's collective housing price exceeds the comprehensive real estate tax deduction threshold, whereas the officetel's market standard value is below the deduction, meaning only property tax is charged.

Similar situations have been found in Seoul's Gangnam district. Some large-scale officetels with market prices in the 6 billion won range have market standard values below the threshold for comprehensive real estate tax. This means that despite the actual transaction price placing them in the ultra-high-end category, comprehensive real estate tax may not be applied depending on the taxable value. However, this is a straightforward comparison based on the assumption that the 2026 tax reform plan will be enacted. In practice, the actual holding tax would be affected by various factors, such as eligibility for tax credits, under individual circumstances.

It should be noted, however, that residential officetels are not unconditionally excluded from being subject to comprehensive real estate tax. If, as of June 1 each year, the officetel is actually used for residential purposes, it may be included in the taxable base for both residential property tax and comprehensive real estate tax. The final tax liability will also vary depending on whether the combined taxable value of all properties exceeds the deduction threshold.

The key point is that, because residential officetels use a different method to determine the taxable base than apartments, there can be significant differences in holding costs. With identical conditions—such as whether properties are owned individually or jointly, the number of properties owned, actual residency status, and eligibility for tax credits—if the taxable base is different, annual tax liability will differ as well.

◆ Large Residential Officetels Emerging as Alternative to Apartments

The rising focus on holding costs is also impacting the market for large residential officetels. While the officetel market in the past mainly featured studio-type rental properties, in recent years it has expanded to include products with a dedicated area of over 100 square meters and layouts resembling apartments, specifically targeting owner-occupiers.

According to Korea Real Estate Board, during the second quarter of this year, the sales price of residential officetels over 85 square meters in Seoul rose by 0.59% from the previous quarter. This is the highest increase among all size categories of officetels. In June, the average sales price for residential officetels over 85 square meters in Seoul exceeded 1.4 billion won for the first time since statistics have been kept.

The upward trend in large officetels demonstrates that the market is bifurcating between small, income-oriented products and large, owner-occupied products. Large officetels with strong locations, generous floor area, well-designed layouts and residential convenience are attracting demand as alternatives to apartments, while smaller units are being differentiated by rental yield and sale price.

The product composition of large residential officetels has also changed. Recent large-scale officetels are expanding spaces around the living room and kitchen, incorporating four-bay and cross-ventilation designs, as well as extensive storage to enhance livability. With balconies now allowed for officetels, further space expansion and flexible unit layouts have become possible.

Ultimately, for those wishing to enjoy the benefits of city infrastructure while seeking comfortable, newly-built housing, high-end officetels are gaining attention as an excellent alternative.

A real estate industry insider commented, "The longer one holds a high-priced residential property, the greater the impact of annual fixed costs such as taxes and maintenance fees, not just the initial purchase price." He continued, "Recently, large residential officetels are increasing their suitability for owner-occupiers by offering apartment-style layouts and balconies, and for some products, there are also differences in holding costs."

He added, "Given the scarcity of newly built products with large floor areas and cutting-edge designs in Seoul’s prime districts, buyers prioritizing location, housing environment, and long-term holding costs should also consider large residential officetels as a viable option."

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