[Beginner's Guide to Real Estate] "Why Is the Officially Announced Price Important?"... The Officially Announced Price as the Basic Data for Tax Calculation

Announcement of 2020 Officially Announced Prices for Apartment Complexes on the 19th
Anyone Can Check on the 'Real Estate Price Informer' Website

Official Prices Based on 'Appropriate Prices' Set Annually for Houses and Land

Various Taxes Such as Comprehensive Real Estate Tax, Property Tax, Inheritance Tax, and Gift Tax Determined Based on Official Prices
Houses Valued Under 130 Million Won in the Seoul Metropolitan Area Considered 'Homeless' When Applying for Housing Subscription

Government Plans to Continuously Raise the Realization Rate of Official Prices
Continued Along with the Increase in the Fair Market Value Ratio for Comprehensive Real Estate Tax

[Asia Economy Reporter Lee Chun-hee] When I become a real estate reporter, I often get unexpected KakaoTalk messages from friends. "How do I apply for a housing subscription?" "What is first priority?" For the 2030 'Burin-i (Real Estate + Beginner)' who only have subscription savings accounts created by their parents when they were young, I am going to create a guide.

If you are interested in real estate, you probably visited a website on the 19th. It is the 'Real Estate Public Price Informer' (https://www.realtyprice.kr), where you can check the publicly announced prices of apartment complexes nationwide. All apartments, multiplex houses, and detached houses have a 'publicly announced price.' On the 19th, the publicly announced prices of apartment complexes as of January 1, 2020, were released, showing an average increase of 5.99% compared to the previous year. Let's find out what exactly the publicly announced price is and why it is so important.

The publicly announced price is a price determined annually according to the law. The 'Act on Public Notice of Real Estate Prices and Appraisal' stipulates that "The Minister of Land, Infrastructure and Transport shall investigate and calculate the appropriate price of apartment complexes as of the public announcement date each year, announce it after deliberation by the Central Real Estate Appraisal Committee, and provide it to related administrative agencies." This applies not only to apartment complexes but also to detached houses and land. Here, 'appropriate price' means "the price most likely to be established when normal transactions occur in the ordinary market for the relevant land and housing."

Housing includes all houses approved for use by December 31 of the previous year, and the final public announcement is made by the end of April based on January 1 of the current year. However, if division, merger, or new construction or extension of housing occurs in the first half of the year, an additional announcement is made on September 28 based on June 1. Newly built houses after June 1 are included in the regular announcement for the following year as of January 1. Exceptionally, the 'LCT' complex in Haeundae-gu, Busan, which attracted attention as a non-metropolitan area complex ranked within the top 10 in publicly announced prices, received its first public price assessment this year after being approved for use in November last year.

▲ 'Real Estate Public Price Informer' 2020 Apartment Price Inquiry and Opinion Hearing Menu (Provided by Korea Appraisal Board)

The reason everyone reacts so strongly to these publicly announced prices is that they serve as the basis for taxation such as property tax and comprehensive real estate holding tax.

The comprehensive real estate holding tax applies if the combined publicly announced price of houses exceeds 600 million KRW (900 million KRW for single-household single-homeowners), and capital gains tax is levied based on the standard price for houses without confirmed actual transaction prices. Inheritance tax is also calculated based on the publicly announced price, and no inheritance tax is imposed if the taxable base is less than 500,000 KRW. Other taxes such as gift tax, property tax, acquisition tax, and registration license tax are also calculated based on the publicly announced price.

The publicly announced price is also an important criterion when applying for apartment subscriptions. Depending on the publicly announced price, even if you own a house, you can apply as a non-homeowner. Houses or pre-sale rights with a net floor area of 60㎡ or less and a publicly announced price of 130 million KRW or less (based on the metropolitan area) are classified as 'small and low-priced housing' and are not considered owned houses when determining housing ownership during subscription.

Additionally, the publicly announced price is used as an indicator in various fields such as housing fund income deduction, basic pension eligibility, public officials' asset disclosure standards, regional health insurance premium assessment, earned income tax credit eligibility, basic livelihood security eligibility, long-term repayment eligibility for student loans after employment, and disability pension eligibility. Everyone inevitably pays attention to changes in the publicly announced price every year.

Although these publicly announced prices increase annually, they still remain at a level lower than actual transaction prices. According to the Ministry of Land, Infrastructure and Transport, the realization rate of publicly announced prices for apartment complexes nationwide was 68.1% last year and 69.0% this year, maintaining a level below 70%.

The government intends to continuously raise the realization rate of apartment complexes. Through the '2020 Real Estate Price Public Notice and Public Price Reliability Enhancement Plan' announced last December, the government has announced the introduction of an 'α value' to improve the realization rate in the public price calculation process this year. The target realization rates are set at 70% for prices between 900 million KRW and less than 1.5 billion KRW, 75% for prices between 1.5 billion KRW and less than 3 billion KRW, and 80% for prices above 3 billion KRW. If the target is not met, an α value will be added to improve the realization rate.

Along with this, the fair market value ratio, a kind of 'discount rate' multiplied by the publicly announced price when determining the taxable base for comprehensive real estate holding tax or property tax, will also be gradually increased. The fair market value ratio for the comprehensive real estate holding tax was 85% last year, 90% this year, 95% next year, and is scheduled to reach 100% in 2022. A 100% fair market value ratio means that the tax amount is calculated by directly multiplying the tax rate by the publicly announced price, so the tax burden is likely to increase gradually due to the rise in publicly announced prices and the fair market value ratio.