[7.10 Real Estate Measures] Multi-homeowners' Comprehensive Real Estate Tax Top Rate 6.0%... Rental Business Benefits Abolished (Comprehensive)

Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki is announcing a comprehensive real estate plan, including strengthening the comprehensive real estate holding tax for multi-homeowners, at the Government Seoul Office in Jongno-gu, Seoul on the 10th. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Sejong Team] The government will raise the maximum comprehensive real estate holding tax rate for multi-homeowners to 6.0%. Additionally, a capital gains tax rate of 70% will be imposed on homes sold within one year of ownership. Acquisition tax rates for multi-homeowners and corporations will also be significantly increased. Owners of two homes will pay 8%, while those with three or more homes and corporations will pay 12%. However, the government plans to reduce the burden on low-income earners and genuine homebuyers by expanding supply for actual demand.

On the 10th, the government held the "10th Emergency Economic Central Countermeasures Headquarters (Economic Central Headquarters) Meeting" at the Government Seoul Office, chaired by Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki, and announced the "Supplementary Measures to Stabilize the Housing Market" including these policies.

◆ First, the government will raise the comprehensive real estate holding tax (종부세) surcharge rate for multi-homeowners more than in the December 16 measures last year. For multi-homeowners with a taxable value exceeding 9.4 billion KRW (owners of three or more homes and two-homeowners in regulated areas), the highest 종부세 rate will be set at 6.0%. This is nearly double the current 3.2% rate and 2.0 percentage points higher than the 4.0% rate proposed in the December 16 measures. Last year, 511,000 taxpayers paid 종부세 on housing, accounting for 1.0% of the total population.

For corporations holding multiple homes, a uniform highest surcharge rate of 6.0% will be applied. Previously, the government announced in the June 17 measures that the highest rate would be applied as a single rate regardless of the taxable value bracket for housing held by corporations. The basic deduction of 600 million KRW and the tax burden cap applied to individuals will not apply to corporations' 종부세 on housing.

The government will also raise the capital gains tax rate on short-term housing held for less than two years. For homes held less than one year, the capital gains tax rate will increase from 40% to 70%. For homes held less than two years, a 60% capital gains tax rate will be imposed.

Acquisition tax rates will also increase for multi-homeowners and corporations. Two-homeowners will face an acquisition tax rate raised to 8%, while individuals owning three or more homes or corporations will see a significant increase to 12%.

◆ Abolition of tax benefits for 4-year short-term rental and 8-year long-term apartment rental = The government will abolish tax benefits for 4-year short-term rental and 8-year general long-term apartment rental business operators. However, the mandatory period for long-term rental types will be extended from 8 years to 10 years to strengthen public obligations.

Until now, the government provided tax reduction benefits to rental business operators who complied with the 4- and 8-year mandatory rental periods and limited rent increases to within 5%. The reduction of tax benefits for existing rental business operators effectively amounts to retroactive application.

Existing homes subject to the abolished types will be automatically deregistered immediately after the mandatory rental period expires. If voluntary deregistration is desired before the end of the rental obligation period, voluntary deregistration will be permitted.

The government will regularize joint inspections to ensure compliance with rental obligations, rent increase restrictions, and lease contract reporting. If violations are detected, penalties such as fines, deregistration of rental business operators, and recovery of tax benefits will be enforced.

◆ Increasing supply for genuine demand... Reviewing floor area ratio increase for 3rd phase new towns = The government will also form a task force (TF) team chaired by Deputy Prime Minister Hong to stabilize the real estate market through expanded housing supply. The TF will review measures to increase supply for genuine demand, including raising the floor area ratio for 3rd phase new towns.

First, a housing supply expansion TF meeting involving ministers of related ministries and local governments will be held under the chairmanship of the Deputy Prime Minister. The Ministry of Land, Infrastructure and Transport will form a practical planning team for housing supply expansion (headed by the 1st Vice Minister) to prepare detailed supply plans and regularly announce progress.

Currently considered options include raising the floor area ratio of 3rd phase new towns and improving urban planning regulations to enable high-density development in city centers.

The government also announced plans to additionally identify new housing sites such as idle land around cities and national facility sites within cities, and to review easing urban regulations for public redevelopment and reconstruction projects. Furthermore, it is exploring ways to supply public rental and sale apartments for youth and newlyweds, and to utilize vacant commercial and office spaces in city centers.

◆ Reducing the burden on low-income earners and genuine homebuyers = The government will also support genuine homebuyers by applying special first-time homebuyer supply to private housing and expanding the supply ratio.

Special first-time homebuyer supply will be expanded not only to national housing but also to private housing. The supply ratio will also increase. For national housing, it will expand from 20% to 25%, and for private housing under 85㎡ in public housing sites, 15% of the supply will be allocated, while 7% will be allocated in private housing sites.

Regarding income criteria, the national housing will maintain the urban worker monthly average income at 100%, while private housing will expand eligibility to those earning up to 130% of the urban worker monthly average income. Based on the 2019 urban worker monthly average income, 130% corresponds to ▲5.69 million KRW for two-person households ▲7.31 million KRW for three-person households ▲8.09 million KRW for four-person households.

The income criteria for newlyweds purchasing a home for the first time will also be relaxed. For newlywed hope towns and private housing with a sale price of 600 million KRW or more, the income requirement will be expanded to 130% of the urban worker monthly average income (140% for dual-income households).

The acquisition tax reduction benefit currently allowed only for newlyweds purchasing their first home will be expanded regardless of age or marital status. For homes priced up to 150 million KRW, the full amount will be exempted, and for homes priced between 150 million KRW and 300 million KRW (400 million KRW in the metropolitan area), half will be exempted.

Additionally, the government plans to reduce property tax rates on mid- to low-priced homes through the official price roadmap scheduled for October this year.

Deputy Prime Minister Hong said, "We aim to promptly push the tax law through the temporary National Assembly session this month," and added, "We will immediately activate the TF for housing supply measures and quickly produce tangible results."