This Year’s Property Tax to Be Eased to 2020 Levels... Comprehensive Real Estate Tax Frozen at Last Year’s Level

View of downtown apartments from Namsan, Seoul.
Photo by Yonhap News

[Asia Economy Reporter Hwang Sumi] A plan is being considered to lower this year’s property tax to the 2020 level before the sharp rise in official land prices and to freeze the comprehensive real estate holding tax for single-home households at last year’s level.

According to Yonhap News on the 13th, the government and the National Assembly announced that government ministries including the Ministry of Economy and Finance, the Ministry of the Interior and Safety, and the Ministry of Land, Infrastructure and Transport plan to jointly announce measures to ease holding tax burdens along with the release of this year’s official apartment prices on the 22nd.

Since the official apartment prices rose by 19% last year and are expected to increase by around 20% this year, the plan is to present measures to ease the rapidly increasing property tax and comprehensive real estate holding tax burdens together.

This holding tax relief plan is expected to be the first major economic policy adjustment case of President-elect Yoon Seok-yeol.

Earlier, President-elect Yoon pledged to lower the official housing prices to the 2020 level before the two steep increases in official land prices this year by reducing the fair market value ratio.

The fair market value ratio is the rate multiplied by the official price to determine the tax base when setting the taxable standard for tax imposition. For example, if the official price of a house is 1 billion KRW and the fair market value ratio is 60%, then 600 million KRW is used as the tax base to impose tax. The lower the fair market value ratio, the smaller the taxable base number, reducing the tax burden.

For property tax, the fair market value ratio is calculated at 60% based on this year’s standard, and for the comprehensive real estate holding tax, it is 100%. The Local Tax Act stipulates that the fair market value ratio for property tax can be adjusted between 40% and 80% (for housing), and the Comprehensive Real Estate Holding Tax Act allows adjustment between 60% and 100% through enforcement ordinances.

By lowering the fair market value ratio to the legal limit of 40% for property tax and to 60% for the comprehensive real estate holding tax, the tax burden can be significantly reduced. In particular, since the adjustment of the fair market value ratio is a matter of enforcement ordinance, it can be implemented by the government’s will alone without the consent of the National Assembly.

However, to achieve the effect of lowering to the 2020 official price level, not only the fair market value ratio but also the official price realization rate, which is the ratio of the official price to the market price, must be adjusted together.

President-elect Yoon’s pledge reportedly limits the tax item that restores the official housing price to the 2020 level to property tax, based on the view that property tax has a greater impact on people’s lives.

For the comprehensive real estate holding tax, the pledge includes reverting the tax rate for single-home owners to the pre-Moon Jae-in administration level (0.6?3.0% → 0.5?2.0%), freezing the fair market value ratio at last year’s level of 95%, and capping the tax burden increase rate at 50%.

This approach is said to be less effective than the comprehensive real estate holding tax relief plan currently being promoted by the ruling party and government.

The ruling party and government plan to ease the comprehensive real estate holding tax burden by capping this year’s tax burden at last year’s 100% level or by applying last year’s official land price instead of this year’s. This means freezing this year’s comprehensive real estate holding tax at last year’s level.

The government plans to hold consultations with President-elect Yoon’s transition committee this week, focusing on the existing ruling party and government plan, and announce the final plan on the 22nd.