Targeting multi-home owners and non-residents while protecting owner-occupiers; comprehensive property tax overhaul expected to curb liquidity flowing from semiconductor boom into housing market

South Korea's upcoming tax reform package, expected to be unveiled in late July, is set to include measures to strengthen property holding taxes and capital gains taxes on real estate.

President Lee Jae Myung, the presidential office and the economic policy team have all publicly called for normalizing real estate taxation in recent weeks, making a tax overhaul widely seen as a foregone conclusion. A particular concern driving the effort is that liquidity generated by the semiconductor industry boom could flow into the housing market and push up home prices — making tax design that lowers expected returns on real estate investment a central challenge of the reform.

Apartment buildings fill the Seoul cityscape as seen from Namsan in May. [Yonhap]
Apartment buildings fill the Seoul cityscape as seen from Namsan in May. [Yonhap]

Kim Yong-beom, the presidential office's policy chief, wrote on social media on Saturday that "real estate taxation must be normalized," adding that "adjusting holding taxes and capital gains taxes is a necessary and right direction."

Kim said that once performance bonuses are actually paid out, wage increases materialize and export proceeds begin flowing back into the domestic economy in earnest, "people's behavior will change." He added that historically such money has repeatedly ended up flowing into the real estate market. "This time, it is likely to be people with cash — not those taking on debt — who will move," he said. "If they become convinced that the profit after taxes is still worth it, ordinary regulations may not be enough."

Both inside and outside the government, Kim's remarks are being read not as a personal opinion but as a signal pointing to the specific direction of the tax reform package due to be announced at the end of next month.

In fact, the messages coming from the presidential office and the economic team have converged on a clear line: protect genuine owner-occupiers while raising the tax burden on those holding real estate for investment or speculative purposes. The intent is to lower expected returns on real estate and block liquidity from flowing into the housing sector.

President Lee said at his first-anniversary press conference on June 8 that South Korea's holding taxes are generally low and that it would be appropriate to impose a holding burden as advanced Western countries do. "We are not stopping people from owning multiple homes, but they should bear a corresponding burden," he said. Deputy Prime Minister and Finance Minister Koo Yun-cheol said on Monday that homes held for owner-occupancy and those held for speculation are different, adding that "there is no need to give incentives for holding housing that you do not actually live in."

Against this backdrop, a strengthening of the comprehensive real estate tax — known as jongbusae — as the centerpiece of the holding tax overhaul has effectively solidified as the core direction of the reform package. Raising the jongbusae rate for multi-home owners and lifting the fair market value ratio are the two measures most frequently cited.

On the rate side, raising the jongbusae rate for multi-home owners is being discussed as a partial reversal of the holding tax relief introduced under the Yoon Suk Yeol administration. The current top jongbusae rate on residential property for multi-home owners stands at 5.0 percent, and the possibility of expanding the holding tax burden through rate adjustments is being raised.

Lifting the fair market value ratio is also considered a strong option. The ratio is applied when calculating the jongbusae tax base, and raising it increases the effective tax burden without touching the nominal rate. It is seen as a realistic alternative because it carries relatively less political cost than a rate hike while still delivering a meaningful revenue boost.

Analysts say that tightening the jongbusae is tied not only to stabilizing the real estate market but also to securing funding for balanced regional development. Because jongbusae revenue is transferred to local governments through the real estate allocation tax and is also linked to the special rural development tax, the government stands to achieve two goals at once — market stability and revenue generation.

A higher tax burden on owners of ultra-high-priced single homes is also being discussed. There is considerable awareness within the government that restrictions on multi-home ownership have paradoxically fueled demand for one premium property. Alongside measures to raise the jongbusae burden on ultra-high-priced home owners, the market is also discussing the possibility of adjusting the current 1.2 billion won (about $782,000) assessed-value threshold for the single-household jongbusae exemption.

On the capital gains tax side, a revamp of the long-term holding special deduction is expected to be the centerpiece. Under current rules, a single-home owner who holds and lives in a property for 10 years or more can deduct up to 80 percent of gains. The government is reviewing ways to tilt the tax benefit more toward actual residency rather than simple ownership.

Adjustments to tax benefits for registered rental business operators are also expected to be part of the broader reform discussion.

National Tax Service Commissioner Lim Gwang-hyeon wrote on social media on Saturday that the exemption from the capital gains tax surcharge for multi-home registered landlords continues even after their rental periods end, deepening a supply lockup. "I hope that giving registered rental multi-home owners an exit opportunity will bring some 68,000 Seoul apartments to market," he said. The remarks align with President Lee's call in February for a review of the tax privileges granted to registered rental housing.

Park Won-gap, a senior real estate expert at KB Kookmin Bank, forecast that the tax reform issue could deliver three separate shocks to the market. "One round of listings has already come out following the end of the capital gains tax surcharge grace period; volatility will widen again when the July tax bill is finalized, and additional listings could emerge around the grace period before the measures actually take effect," he said. He added that the impact would be greater on the high-end housing market than on mid- to low-priced homes.

However, concerns about the government's push to raise real estate taxes are also being voiced. Depending on the scope and intensity of the measures, controversy over the burden on genuine owner-occupiers could reignite.

A real estate expert who asked not to be named warned that strengthening holding taxes could trigger a bigger backlash than expected. "In today's super-aged society, many owners of high-priced homes in key Seoul neighborhoods are elderly 'cash-poor' households — asset-rich but short on cash flow," the expert said. "If the holding tax burden grows, tax resistance and pressure to sell assets could be far greater than anticipated." The expert added that because the government has consistently said it would not use taxes to control home prices, a policy reversal would itself carry significant consequences.


y2k@heraldcorp.com