As the local elections conclude, discussions on property tax reforms by the government and ruling party are expected to accelerate. With a persistent "triple strength" trend of rising sales, lease, and rental prices across the metropolitan area, the absence of national elections for nearly two years is seen as a factor supporting the push for property tax reforms.
According to industry sources, President Lee Jae-myung stated on June 1 via his X (formerly Twitter) account, "We will definitely escape from the disastrous real estate income republic." While he did not directly mention property taxes, there is speculation that discussions on property tax reforms, including adjustments to the holding tax, may gain momentum following the local elections. The President also reviewed the government's response to rising housing prices in Seoul during a Cabinet meeting at the end of last month.
Market indicators are also lending weight to the possibility of further government action. According to the Korea Real Estate Agency's April housing price trend survey, the rate of increase in apartment sales prices in Seoul rose from 0.34% in March to 0.55% in April. During the same period, the prices for jeonse (long-term lease) and monthly rent increased by 0.82% and 0.74%, respectively, outpacing the sales price increase.
Currently, discussions within the government and ruling party include strengthening the residency requirements for long-term holding tax exemptions for non-resident homeowners and increasing the property tax burden on multiple homeowners. There are two main approaches to reform: adjusting the comprehensive real estate tax rate through legislative action or modifying the requirements for long-term holding exemptions, and adjusting the fair market value ratio for the comprehensive real estate tax through amendments to enforcement regulations without separate legislation. The current fair market value ratio for the comprehensive real estate tax is 60%, and the government could raise it to a maximum of 100% through regulatory changes alone.
However, some analysts suggest that immediate changes to this year's property tax may be challenging. Given the procedural requirements for regulatory amendments and tax schedules, there is limited time to adjust tax burdens in the short term. With this year's public housing prices in Seoul already rising significantly, maintaining the current fair market value ratio could naturally increase the tax burden due to a larger tax base.
As a result, the market anticipates that this year will focus on designing reforms such as the long-term holding exemption adjustments, with fair market value ratio changes potentially implemented gradually starting next year. Proposals for amending tax laws related to the fair market value ratio have already been introduced in the ruling coalition, laying the groundwork for medium- to long-term legislative discussions.
With the outlines of tax reforms still unclear, market participants are adopting a wait-and-see approach. According to the Supreme Court's registration information portal, the number of real estate registration applications nationwide in May decreased by about 20% compared to the previous month. The average number of permit applications in land transaction approval zones dropped from around 700 before the end of the capital gains tax exemption to about 200 after the resumption of the tax. The uncertainty surrounding tax reforms and the resumption of the capital gains tax has created a climate where both buyers and sellers are hesitant to act.
The challenge is that merely tightening tax regulations may not effectively quell upward price pressures. With a prevailing belief that supply shortages will persist for years, it remains uncertain whether increased property tax burdens will lead to a surge in listings. There are concerns that if non-resident homeowners convert to actual residency to avoid tax burdens, the reduction in rental listings could exacerbate instability in the rental market.
In fact, following the end of the capital gains tax exemption, listings for apartments in Seoul have rapidly declined. According to the real estate platform Asil, the number of apartment listings in Seoul fell by nearly 7,000 within a week after the exemption ended, dropping to around 63,000. There are predictions that the pace of decline in listings could accelerate from June to July.
While tightening tax regulations may dampen buyer sentiment, experts caution that a decrease in transaction volume does not necessarily lead to price stabilization. In a market with reduced listings, if some transactions are reported at record prices, expectations for market prices could rise again. In a situation where both jeonse and monthly rent prices are increasing, the pressure for actual buyers to transition remains strong.
Lee Eun-hyung, a researcher at the Korea Construction Policy Institute, stated, "Even if transaction volumes decrease, there is a possibility that prices will continue to rise in the second half of the year based on the prices of transactions that do occur. Considering supply conditions along with macroeconomic factors such as inflation, oil prices, and exchange rates, merely adjusting the tax system will have limited impact on the upward trend in housing prices for the time being."
* This article has been translated by AI.
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