[Yoon Administration Tax Law] Heavy Increase in Comprehensive Real Estate Tax Burden for Multi-Homeowners... Impact on Real Estate Market

Conversion of Comprehensive Real Estate Tax Housing Count to Value-Based Standard
"Multi-homeowners with several houses of lower value especially benefit"
"Increase in multi-homeowners withdrawing listings... Limited impact on transaction activation"

[Image source=Yonhap News]

[Asia Economy Reporters Kim Hyemin and Hwang Seoyul] The core of the real estate tax policy in the '2022 Tax Reform Bill' announced by the government on the 21st is that the comprehensive real estate tax (Comprehensive RE Tax) burden has been significantly reduced.

Experts believe that multi-homeowners, especially those owning multiple homes with lower values, will benefit greatly. This is also expected to have the effect of withdrawing some of the multi-homeowners' properties from the market. However, since the acquisition tax still maintains a heavy tax rate, it is not expected that the number of multi-homeowners will increase sharply. Given the ongoing high interest rates and expectations of housing price adjustments, it is unlikely to have a significant impact on the currently subdued transaction atmosphere.

In this tax reform bill, the real estate tax section is characterized by virtually eliminating the heavy tax rate on the housing portion of the Comprehensive RE Tax for multi-homeowners in regulated areas and lowering it to the general tax rate. To this end, the taxation criteria, which had been differentiated according to the number of houses, were changed to 'value,' and the tax rates were also lowered. As a result, multi-homeowners holding houses with a taxable standard of 300 million KRW or less, who had been subject to a 1.2% Comprehensive RE Tax rate, will now see it reduced to 0.5%. The reduction is greater as the combined housing value increases. Multi-homeowners with a taxable standard exceeding 9.4 billion KRW will see the rate drop from 6% to 2.7%. Essentially, the tax policy has reverted to the 2018 level before the multi-homeowner tax rate surcharge.

While this change will reduce the Comprehensive RE Tax burden for multi-homeowners overall, experts agree that the tax burden will significantly decrease for multi-homeowners holding several lower-value homes. Park Wongap, Senior Real Estate Specialist at KB Real Estate, said, "The tax burden will be felt more by multi-homeowners in non-metropolitan areas where housing prices are low," adding, "Multi-homeowners in Gangnam and areas like Mapo, Yongsan, and Seongdong districts have also seen a significant reduction in tax burden, though not as much as the former."

In fact, a single homeowner holding a 5 billion KRW house currently faces a Comprehensive RE Tax rate of 1.6%, whereas a multi-homeowner with a combined value of 2.5 billion KRW is subject to a 3.6% rate. Yoon Jihae, Senior Researcher at Real Estate R114, explained, "The structure was such that multi-homeowners owning several houses with a combined value less than 5 billion KRW were subject to higher tax rates than someone owning a single high-value house worth 5 billion KRW." She evaluated, "Changing the Comprehensive RE Tax rate criteria from simply counting the number of houses to considering the value, without regard to individual circumstances, is a reasonably rational decision."

[Image source=Yonhap News]

However, it is expected that the number of multi-homeowners will not increase just because the holding tax burden has decreased. Senior Specialist Park Wongap said, "Although the Comprehensive RE Tax disadvantage for multi-homeowners has been reduced, acquisition tax heavy rates still apply in regulated areas, and the capital gains tax surcharge is temporarily reduced only until May next year but the system remains," adding, "There are still many barriers for a single homeowner to purchase an additional house."

The impact on real estate transactions or price changes is also expected to be limited. Ham Youngjin, Head of Zigbang Big Data Lab, said, "Given the high downward pressure on the housing market due to interest rate hikes, recognition of price peaks, economic downturn, and cautious transactions, it is limited to expect that lowering the holding tax burden will activate the transaction market."

The number of multi-homeowners withdrawing properties may increase. Ham Youngjin said, "Among those owning multiple houses, people who had to urgently decide to gift or sell due to the Comprehensive RE Tax burden have gained time," adding, "Houses near expanded transportation networks in the metropolitan area, areas lacking new constructions, and residential areas adjacent to self-sufficient business districts are more likely to shift from selling to holding due to this Comprehensive RE Tax reduction." Senior Researcher Yoon Jihae also said, "A significant portion of the properties currently on the market are from multi-homeowners, and with this tax reduction, the number of multi-homeowners who feel they can hold on may increase," adding, "The pressure to increase listings will somewhat ease."

Meanwhile, there are also forecasts that low-priced housing transactions in local areas may be relatively active due to this tax reform. In addition to switching the Comprehensive RE Tax calculation to a value basis, the government decided to exclude multi-homeowners holding low-priced houses with official prices of 300 million KRW or less outside the metropolitan area and major cities from the housing count. Yoon Sumin, Real Estate Specialist at NH Nonghyup Bank, said, "Since the tax burden on low-priced houses in local areas is not high, some investment demand may come in." Senior Specialist Park Wongap also said, "People may continue to hold one apartment in a large city and purchase small detached houses in local areas to live a dual life between urban and rural areas, increasing multi-habitation."