Foreign-Owned Apartments Subject to Heavy Taxation When Not Used as Primary Residence

Panoramic view of apartments in Seoul city center

[Asia Economy Reporter Kwangho Lee] The ruling Democratic Party and the government are putting brakes on real estate transactions by foreigners. This measure comes as speculative demand is increasing, with foreigners acquiring apartments without actually residing in them amid a surge in foreign purchases of domestic real estate. The ruling party plans to impose higher taxes on houses that are not used as primary residences.

According to the National Assembly and the government on the 5th, Jeong Il-young, a member of the Democratic Party on the National Assembly's Planning and Finance Committee, has introduced a revision bill to the Local Tax Act that would impose a 20% acquisition tax surcharge if a foreigner buys a house in Korea but does not reside there for six months without a valid reason. The current law stipulates that acquisition tax is levied differentially based on the transaction amount. The buyer’s nationality or actual residence status was not considered. Domestic residents are subject to various financial regulations such as Loan-to-Value (LTV) ratio, Debt-to-Income (DTI) ratio, and submission of funding plans. However, these regulations have not applied to foreigners, leading to criticism of reverse discrimination.

According to data released by the National Tax Service on the 3rd, real estate owned by foreigners exceeded 7 trillion won, and cases of gap investment were detected. From 2017 to May this year, 23,219 foreigners acquired a total of 23,167 domestic apartments, with transaction amounts reaching 7.6726 trillion won. By nationality, Chinese nationals acquired 13,573 houses, the highest number, followed by Americans with 4,282 cases. By region, Seoul had the highest number of transactions at 4,473, with transaction amounts totaling 3.2725 trillion won. Among the total 23,167 acquired apartments, 7,569 units, or 32.7%, were never occupied by their owners after acquisition. There were 1,036 foreigners who owned two or more apartments. In response, the National Tax Service stated, "Acquiring and holding multiple domestic apartments without residing in them is suspected to be speculative demand," and launched tax investigations on 42 multi-homeowners.

Jeong’s office estimated that foreign investment demand surged domestically as the local housing market showed signs of rapid price increases. Accordingly, additional bills to impose higher taxes on capital gains and comprehensive real estate taxes are also planned. Recently, Kim Tae-nyeon, the floor leader of the Democratic Party, said at the party’s Supreme Council meeting, "There are great concerns about speculative real estate purchases by foreigners," and added, "We will closely examine foreign real estate acquisitions with the government and prepare countermeasures by referring to overseas cases if necessary." He also noted, "Unlike Korea’s real estate tax system, Singapore, Canada, and New Zealand apply higher tax rates or regulate housing purchases to block speculation by foreigners." A government official related to this matter said, "Since related bills have been introduced in the National Assembly, discussions are expected soon," and added, "The government plans to review the relevant contents."