The upcoming reform of real estate taxes has brought to the forefront the need to balance the taxation of high-value single homes with the protection of actual residents. Critics argue that the current tax system has encouraged a preference for so-called 'one good home,' while cautioning that increasing tax burdens could shift the financial strain onto actual homeowners and the rental market.
On July 16, the Ministry of Economy and Finance held a public discussion on real estate tax reform at the Bank Hall in Jung-gu, Seoul, led by Deputy Prime Minister and Minister of Economy Koo Yun-cheol. The meeting focused on the direction of reforms concerning the comprehensive real estate tax, capital gains tax, and long-term holding special deductions. The government plans to consolidate discussions across supply, finance, and tax sectors before a major forum led by the President on July 23 to discuss real estate policy.
During the discussion, there was a consensus that the criteria for the comprehensive real estate tax should shift from the number of homes owned to the total asset value of the properties. This approach aims to establish a fairer tax burden based on the value of the homes rather than the quantity owned.
Oh Jong-hyun, head of the Tax Research Division at the Korea Institute of Public Finance, stated, “All issues surrounding real estate taxation are concentrated on the high-value single home problem,” emphasizing the need to lower tax burdens for actual residents while adjusting tax criteria for non-residents. He suggested differentiating between homes for living and those for investment, proposing lower tax burdens for primary residences and higher burdens for non-residential properties. He also argued that tax criteria should focus on property value rather than the number of homes owned.
Ham Young-jin, head of the Real Estate Research Lab at Woori Bank, noted that even with the same total assessed value, the tax burden can differ significantly based on the number of homes owned. He advocated for a tax system based on property value rather than quantity, and suggested that the long-term holding special deduction should be redesigned to focus on actual residency.
The debate also extends to where the threshold for high-value single homes should be set. Professor Shim Chung-jin from Konkuk University proposed that high-value homes should be defined based on capital gains rather than sale prices, suggesting a threshold of 3 billion won (approximately $2.3 million) in capital gains.
Calls for strengthening property taxes have also emerged. Nam Gi-eob, head of the Land + Freedom Research Institute, argued that the effective tax rate on property is currently one-third to one-fifth of that in major developed countries, asserting that raising it to developed country levels should not be considered punitive taxation. He suggested that not only the comprehensive real estate tax but also property taxes should be increased.
Revisions to the long-term holding special deduction are also under scrutiny. The current system allows homeowners to deduct up to 80% of capital gains based on the duration of ownership and residency. Critics have pointed out that homeowners who do not reside in their properties can still receive up to a 40% deduction, which disproportionately benefits those holding high-value single homes.
Chung Se-eun, a professor at Chungnam National University, commented on the need to reduce the special deduction, stating, “Housing prices have risen too much, so even if we pay a lot in capital gains tax, we are still making significant profits.” He argued for a stronger enforcement of capital gains taxation in line with the principle that taxes should be levied where income is generated.
However, some experts caution that tightening tax regulations could lead to a slowdown in transactions and instability in the rental market. Seo Jin-hyung, a professor at Kwangwoon University, pointed out that maintaining long-term holding benefits for both residents and non-residents is essential for ensuring a stable supply of rental housing. He warned that drastically reducing the special deduction could diminish the incentive to sell homes, exacerbating the issue of housing inventory.
The government's tax reform plan is expected to hinge on how to distinguish between 'speculative holdings' and 'actual resident holdings.' It aims to enhance the fairness of taxation on high-value single homes while also preventing a sudden increase in tax burdens for retirees and long-term residents.
The Ministry of Economy and Finance plans to refine the tax reform proposal by the end of this month based on the feedback gathered during the discussion. A shift from a quantity-based tax system to one focused on value and actual residency is being seriously considered, with debates over the criteria for high-value homes and adjustments to the special deduction likely to continue until the final proposal is released.
* This article has been translated by AI.
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