Social Enterprises Also Worry About Comprehensive Real Estate Tax... Ruling Party Late to Prepare Amendment Bill

Market Confusion Ahead of 종부세 Notice Dispatch
Social Enterprises and Cooperatives Also Face Increased Burden This Year
Criticism of Excessive Tax Burden Despite Efforts to Support Low-Income Housing Stability
Democratic Party Proposed Amendment, Still Under National Assembly Discussion

Photo by Mun Honam munonam@

With the Comprehensive Real Estate Holding Tax (CREHT) notices about to be sent out, a 'CREHT bomb' alert has been issued for social enterprises and housing cooperatives as well. This is because many social enterprises engaged in housing stability projects were included in the CREHT targets due to the July 10 measures announced last year. Although the ruling party has belatedly started to prepare alternatives, concerns are emerging that the immediate CREHT burden could negatively impact housing for ordinary citizens.

According to the real estate industry on the 15th, alternative housing models such as housing cooperatives are also expected to face a significant increase in CREHT burden this year. The government abolished the four-year short-term private rental housing system, which had been exempt from CREHT, to block speculative demand from corporations and multi-homeowners last year, and introduced CREHT surcharges on corporations. In this process, social enterprises were not excluded, resulting in a direct hit from CREHT.

With the abolition of the short-term private rental type, cooperatives whose registration was automatically canceled and who could not register as long-term private rentals due to issues such as loan ratios will face a huge CREHT burden this year depending on the scale of their real estate holdings. For example, A Housing Cooperative, which operates social housing and youth share houses for vulnerable groups in Mapo-gu and Eunpyeong-gu, Seoul, held a fundraising auction last month to raise 12 million KRW for this year’s CREHT.

Other cooperatives are also reportedly classified as multi-home corporations overnight and are expected to receive CREHT notices amounting to tens of millions of KRW. The housing they supply not only strengthens housing stability for ordinary citizens with affordable rents but also often has a non-profit residential community character unrelated to real estate speculation. Therefore, imposing CREHT burdens on them like general corporations is considered inappropriate.

The Democratic Party of Korea proposed an amendment to the CREHT Act at the end of last month to exclude social enterprises and cooperatives from corporations subject to CREHT surcharges, but it was only submitted to the relevant committee last week.

The current CREHT Act has significantly increased the tax burden by excluding basic deductions and applying a single highest tax rate to housing held by corporations, excluding public housing providers, starting this year. The purpose of the bill is to tax social enterprises similarly to individuals without imposing surcharges.

Chun Jun-ho, a Democratic Party lawmaker who sponsored the amendment, explained, "Although the nature of the housing supplied by social enterprises and the characteristics of the suppliers are similar to public housing providers, they are not included in the surcharge exemption, which is a legislative oversight. Excessive CREHT burdens make it difficult to continue projects or inevitably increase housing costs for residents."

However, there are also criticisms that blanket exclusion from surcharges just because they are social enterprises is an excessive benefit. Jeong Myeong-ho, a specialist at the National Assembly’s Planning and Finance Committee who reviewed the amendment, said, "Since rental housing registered as private rental housing and complying with rent restrictions already receives exclusion benefits, whether there is a social consensus on the need to reduce tax burdens when renting unregistered rental housing is a matter that requires social agreement."