[Weekly Review] Real Estate Follow-up Measures Announced... Government Pressures "Civil Servants, Sell Your Houses"

Government "Further Review on Basic Deduction for Equity Funds and Deadline for Withholding Tax on Financial Investment Income"

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, is answering reporters' questions at a briefing on follow-up measures to the June 17 real estate policy held at the Government Seoul Office Building on the morning of the 10th. [Image source=Yonhap News]

[Asia Economy Reporter Kim Eunbyeol] The government has announced follow-up measures to the 'June 17 Real Estate Policy' aimed at stabilizing housing prices. Starting next year, the highest comprehensive real estate tax rate will rise to 6%, significantly increasing the tax burden on owners of two or more homes. Amid this, the government has also begun pressuring high-ranking officials to dispose of multiple homes by threatening personnel disadvantages. Particularly, among grade 2 or higher officials included in the immediate multi-homeowner crackdown due to Sejong pre-sale rights that cannot be sold because of resale restrictions, complaints such as "What crime have we committed?" are emerging.

◆Highest Comprehensive Real Estate Tax Rate of 6% from Next Year= On the 10th, the government announced the 'Housing Market Stabilization Management Plan.' The comprehensive real estate tax surcharge rate for multi-homeowners will increase to a maximum of 6.0%. Additionally, the capital gains tax rate applied when selling a home held for less than one year will rise to 70%, up 30 percentage points from the current 40%. The government's policy is to significantly increase the tax burden on multi-homeowners to block speculative demand.

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, announced the 'Supplementary Housing Market Stabilization Measures' at the 10th Emergency Economic Central Countermeasures Headquarters (Economic Central Headquarters) meeting held at the Government Seoul Office on the 10th, expressing regret that concerns about instability in the real estate market have not subsided despite the recent June 17 measures.

The current comprehensive real estate tax rate ranges from 0.6% to 3.2%, with the highest rate applied to properties exceeding 9.4 billion KRW, but this will be raised to 1.2% to 6.0%. Following the June 17 measures, housing-holding corporations will also be subject to the highest individual tax rate, so multi-homeowner corporations will be subject to the highest surcharge rate of 6%. Capital gains tax will be increased for those who bought and sold homes within less than two years to gain capital gains or multi-homeowners who sold homes in regulated areas to gain capital gains. The capital gains tax rate for sales within one year will increase from 40% to 70%, and for sales within two years, the basic rate of 60% will apply.

Despite these measures, experts question whether they will bring about housing price stabilization and an increase in listings. The comprehensive real estate tax is already based on the tax standard date of this year (June 1), so the current tax law applies to this year's taxes. Because the announcement and imposition dates differ, it is unclear when homeowners will put their properties on the market.

◆Officials Told "Sell Your Homes"... Hong Nam-ki Sells Apartment Saying "I Will Become a Single-Homeowner"= The pressure on high-ranking officials to dispose of homes has intensified. On the 8th, Prime Minister Chung Sye-kyun stated at the Central Disaster and Safety Countermeasures Headquarters meeting, "High-ranking officials with multiple homes should sell their houses." It is reported that personnel disadvantages for multi-homeowner high-ranking officials are also being prepared. According to the March official gazette, among 750 high-ranking officials in central government ministries whose assets were disclosed, about one-third, 248, were multi-homeowners. The acquisition background of multi-homeowners will be reviewed and reflected in evaluations.

Meanwhile, Deputy Prime Minister Hong decided to sell an apartment in Uiwang, Gyeonggi Province, instead of the Sejong City apartment pre-sale rights that are difficult to dispose of immediately. Following the stern orders from Prime Minister Chung, who instructed high-ranking officials to dispose of multiple homes, this is the third case after Financial Services Commission Chairman Eun Sung-soo and Deputy Minister of Economy and Finance Kim Yong-beom disposed of their owned homes (shares).

On the 9th, Deputy Prime Minister Hong posted on his Facebook titled 'Putting down the heavy heart of not being a single-homeowner,' stating, "To become a single-homeowner, I will sell the Uiwang apartment, where I have lived like family, without waiting to sell the pre-sale rights." With Deputy Prime Minister Hong disposing of his home, among 40 ministers and vice ministers of 18 ministries, 12 remain multi-homeowners (7 ministers, 6 vice ministers).

With Deputy Prime Minister Hong also disposing of his home, the psychological burden on Sejong City officials is increasing. Many officials have apartments in Sejong City obtained through special supply, moving from the Seoul metropolitan area due to the relocation of the Sejong Government Complex. Among 'goose father officials' who keep homes in the metropolitan area for their children's education, there are reactions that they are now in a position where they must sell one of their homes for promotion.

[Image source=Yonhap News]

◆Government to Further Review Basic Deduction for Equity Funds and Withholding Period for Financial Investment Income= Meanwhile, regarding the financial tax reform plan, the government hinted at the possibility of reconsideration concerning criticisms of reverse discrimination. While a basic deduction of 20 million KRW was granted for domestic listed stocks, no basic deduction was provided for equity funds, which has been criticized as 'reverse discrimination.' The government plans to review this further and reflect it in the final announcement. Until now, the government had drawn a line on basic deductions for funds, stating it would consider measures to address disadvantages in indirect investment in domestic stocks through the Individual Savings Account (ISA) system.

Earlier, on the 25th of last month, the Ministry of Economy and Finance announced the 'Financial Tax System Advancement Direction,' which includes taxing capital gains on small shareholders' listed stocks, currently tax-exempt, from 2023 and lowering the securities transaction tax from the current 0.25% to 0.15%. When taxing capital gains, a basic deduction of 20 million KRW applies to capital gains from domestic listed stocks, but no basic deduction applies to equity exchange-traded funds (ETFs) and funds, sparking controversy over reverse discrimination. For example, if one earns 20 million KRW annually from direct stock investment, the basic deduction applies, and no tax is paid. However, if one earns 20 million KRW from equity funds, the entire amount is taxable, and a financial investment income tax of 4 million KRW (20% tax rate applied) must be paid.