Government to Amend Comprehensive Real Estate Tax and Capital Gains Tax Laws for Single-Homeowners Following July 10 Measures
"No Immediate Sellers Expected" "Market Price Changes Likely After Tax Consultations"
[Sejong=Asia Economy Reporters Kim Hyunjung, Kim Yuri] "We are currently receiving a flood of inquiries from multi-homeowners who own real estate worth over 5 billion won. All the listings have been taken off the market, and now we are entering a phase where they are calculating and devising tax-saving strategies." (Representative of A Real Estate Agency, Apgujeong-dong, Gangnam-gu, Seoul)
"Until last week, buyers were rushing to purchase low-priced properties in the 500 million won range in the Gangnam area as if in an auction, but both buying and selling have completely stopped. Instead, we are getting a flood of calls only from those who have signed contracts but have not yet registered as rental business operators, but since there are many inaccuracies, we cannot provide guidance and are just pacing anxiously together." (Representative of B Real Estate Agency, Hong Eun-dong, Seodaemun-gu, Seoul)
The market plunged into turmoil as the government completely reversed its stance from 'targeted regulation' aimed only at certain real estate gap investment groups to an all-out tax pressure policy dubbed the 'hammer tax increase.' The sudden abolition of tax benefits for rental business operators and the strengthening of tax burdens not only on multi-homeowners but also on single-homeowners and long-term holders have spread shock throughout the market. However, rather than a panic selling phenomenon fearing a sharp price drop, there is a clear atmosphere of responding with detailed tax-saving strategies.
According to the Ministry of Economy and Finance on the 13th, following the July 10th measures that significantly increased the tax burden on multi-homeowners, the government plans to push forward an amendment to the Comprehensive Real Estate Tax Act to raise the comprehensive real estate tax rate for single-homeowners from the current 0.5?2.7% to 0.6?3.0% starting next year. This was announced in the December 16th measures last year but was scrapped after failing to pass the 20th National Assembly. An amendment to the Capital Gains Tax Act adding a residency period requirement to the special deduction for long-term holding by single-homeowners is also being pursued.
Including single-homeowners who are subject to the tax increase, the market is busy weighing pros and cons. After the government’s announcement, real estate agencies in the Gangnam area of Seoul were flooded over the weekend with consultations from homeowners worried about the tax burden rather than actual transactions. The representative of A Real Estate Agency in Apgujeong-dong said, "There are many consultations from multi-homeowners, but they are deeply concerned because it is burdensome to sell due to the increased capital gains tax," adding, "The listings that were on the market have mostly been taken, and many multi-homeowners are planning detailed individual buying and selling strategies through tax consultations." The representative of B Real Estate Agency in Hong Eun-dong said, "Most inquiries are about how to respond to sudden changes such as the abolition of tax benefits for rental business operators," and added, "Except for urgent sales, there is no mood to sell immediately." He continued, "Usually, the market quiets down for a certain period after such measures are announced," and said, "Once the calculations of gains and losses are completed, prices will move in one direction."
On online real estate cafes and other platforms, there are also critical voices saying that the government’s policy failures caused real estate prices to rise, but the blame is being shifted to owners of high-priced homes or multi-homeowners. Complaints are also emerging due to frequent policy announcements, saying, "Those who were going to benefit already have, and those who were going to profit already have," and "Real estate investment has now become a first-come, first-served game mainly for wealthy asset holders who have the capacity to respond." In this regard, Ham Youngjin, head of the Zigbang Big Data Lab, said, "With the capital gains tax surcharge blocking the exit for multi-homeowners in regulated areas, raising the comprehensive real estate tax rate raises concerns about tax resistance due to punitive taxation."
The opposition party criticized that such a 'hammer tax increase' would hardly succeed in stabilizing the real estate market. Kim Jong-in, emergency committee chairman of the Future United Party, said at an emergency committee meeting held at the National Assembly that day, "I am very skeptical about the possibility of success of measures that try to tighten tax control only on the results without solving the fundamental causes of real estate price increases," and argued, "Taxpayers will adapt to the taxes, and the burden on tenants will inevitably increase." Chairman Kim added, "Due to the novel coronavirus infection (COVID-19), unprecedented monetary expansion has occurred, and as the value of money falls, real asset values will rise," and said, "Therefore, it is common sense that people feel the need to secure housing."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
