Expert Warns, "90% Realization Rate of Officially Announced Prices Will Significantly Increase Tax Burden" Concerns

[Asia Economy Reporter Yoo In-ho] Experts expressed concerns that the government's roadmap to increase the realization rate of official real estate prices will significantly raise the tax burden. Along with issues of tax equity between high-priced and mid-to-low-priced housing, there are also concerns that official prices could exceed market prices.

According to industry sources on the 28th, the Korea Research Institute for Human Settlements held a public hearing on the real estate official price realization plan the day before and announced research results on scenarios where the realization rate targets were set at 80%, 90%, and 100%, respectively.

The Ministry of Land, Infrastructure and Transport stated that the final plan has not yet been decided, but earlier, the ruling party, the Democratic Party of Korea, announced, "We will raise the official price realization rate to 90% by 2030." In this context, a 90% realization rate is considered the most likely.

Experts generally have a positive stance on promoting the roadmap to increase the official price realization rate but agree that the government must incorporate voices from the field when formulating policies. This is because if the roadmap to increase the official real estate price realization rate is realized, the tax burden on multi-homeowners and ordinary citizens could increase further.

Park Won-gap, Senior Real Estate Specialist at KB Kookmin Bank, said, "Realizing the official price at around 90% is the direction we should take in the long term, but since 90% is close to the market price, it is necessary to consider whether price volatility can be timely reflected." He added, "Unlike apartments, where market prices are easy to grasp, detached houses have fewer transactions, making it difficult to determine market prices. Raising the realization rate to 90% could lead to dissatisfaction or complaints in the field."

While there were many positive evaluations regarding the Korea Research Institute for Human Settlements' adjustment of the realization rate speed for houses priced under 900 million KRW in the public hearing plan, voices raising equity issues were also heard.

According to the proposal presented by the Korea Research Institute for Human Settlements, for apartments, the official price realization rate for apartments priced at 900 million KRW is currently 68.1%, expected to be 70.0% in 2023 and 90.0% by 2030. Apartments priced between 900 million and 1.5 billion KRW will reach 90.0% by 2027, and those over 1.5 billion KRW will reach 90.0% by 2025.

For detached houses, the official price realization rate for those priced under 900 million KRW is currently 52.4%, expected to be 55.0% in 2023, 75.4% in 2030, and 90.0% in 2035. Houses priced between 900 million and 1.5 billion KRW are currently at 53.5%, expected to reach 71.8% in 2025, 82.7% in 2028, and 90.0% in 2030. For houses over 1.5 billion KRW, the rate is currently 58.4%, expected to be 71.9% in 2023, 81.0% in 2025, and 90.0% in 2027.

Kim Gyu-jung, Head of the Asset Succession Research Institute at Korea Investment & Securities, said, "There is a large difference in realization rates by real estate type and price range, so speed adjustment is necessary when raising them," adding, "Coordination is also needed to ease the tax burden on mid-to-low-priced real-use real estate."

Experts predicted that since a realization rate reaching 90% is not a low figure, the tax burden will increase significantly. Ham Young-jin, Head of the Big Data Lab at Zigbang, said, "In the future, the tax burden on holding property taxes for ultra-high-priced homes and multi-homeowners is expected to increase steadily." He added, "Although the Korea Research Institute for Human Settlements cited overseas cases where realization rates exceed 100% in some U.S. states like Denver, since this applies nationwide rather than at the city level, overall tax burdens such as property tax and comprehensive real estate tax will increase."

Kwon Dae-jung, Professor of Real Estate at Myongji University, also said, "With the increase in the realization rate, not only single-homeowners subject to the comprehensive real estate tax but also owners of mid-to-low-priced single homes will face increased tax burdens."

Ahn Myung-sook, Head of the Real Estate Investment Support Center at Woori Bank, emphasized, "The increase in holding tax burden will be felt by many people," adding, "If official prices rise, property taxes will increase, and taxes on gifts or inheritance will inevitably rise as well."

Concerns were also raised about the possibility of official prices surpassing market prices. At the public hearing the day before, it was pointed out that while setting the target at 100% aligns with the legal intent of appropriate pricing, it could increase the burden on citizens through taxes and fees and carries the risk of official prices exceeding market prices.

Ahn said, "During periods of declining house prices, the process of matching the realization rate could lead to official prices surpassing market prices," adding, "This could further increase the tax burden and lead to greater tax resistance."