First Negative Change Rate in 14 Years Since 2009
98.2% of Standard Houses Apply Special Property Tax Rate
Standard Land Change Rate -5.92%... Gyeongnam Shows Largest Decrease
Experts Say "Reduced Holding Tax Will Lower Selling Concerns"
Single-family house in Hannam-dong, Yongsan-gu owned by Lee Myung-hee, Chairwoman of Shinsegae / Photo by Yonhap News
[Asia Economy Reporter Noh Kyung-jo] Next year, the official public announcement prices for standard houses and standard land will each decrease by 5.95% and 5.92%, respectively. This marks the first time in 14 years since the global financial crisis in 2009 that the rate of change in official prices has recorded a negative value.
The government adjusted the price realization rate (the reflection rate compared to market prices) downward to the 2020 level, considering the downward trend in housing prices and difficult economic conditions. This is one of President Yoon Seok-yeol's election pledges and national agenda items, aimed at reducing tax burdens. Official prices serve as a benchmark indicator in 60 areas, including real estate holding taxes (property tax and comprehensive real estate tax), gift tax, health insurance premiums, and development charges.
Realization Rate at 2020 Level... Official Prices Fall Simultaneously in 17 Cities and Provinces
The Ministry of Land, Infrastructure and Transport announced on the 14th that it will conduct owner viewing and opinion collection procedures by the 2nd of next month for the draft official announcement prices of standard houses and standard land surveyed and calculated as of January 1, 2023. The standard houses cover 250,000 households out of 4.14 million nationwide, and the standard land covers 560,000 parcels out of 35.02 million nationwide.
First, the nationwide rate of change in standard house official prices is -5.95%, a decrease of 13.29 percentage points (p) from this year's 7.34%. This is the second negative rate of change and the largest decline since the survey began in 2006, following 2009 (-1.98%).
By region, official prices fell in all 17 cities and provinces. Notably, Seoul, which rose more than 10% this year, will see a rate of change of -8.55% next year, a decline rate higher than the national average. This is followed by Gyeonggi (-5.41%), Jeju (-5.13%), Ulsan (-4.98%), and Daejeon (-4.84%). The smallest decline was in Jeonnam (-2.98%).
In Seoul, Gangnam-gu recorded the largest drop at -10.68%. Seocho-gu (-10.58%), Songpa-gu (-9.89%), Yongsan-gu (-9.84%), Mapo-gu (-9.64%), Gangdong-gu (-9.46%), Dongjak-gu (-9.38%), Gwangjin-gu (-8.82%), and Jongno-gu (-8.71%) all exceeded Seoul's average decline rate.
By official price brackets, about 98.2% of all standard houses were surveyed to be priced at 900 million KRW or less, which qualifies for the special property tax rate. Since last year, the government has temporarily reduced the tax rate by 0.05%p per tax bracket for one household, one house owners with official prices of 900 million KRW or less for three years. The proportion of houses priced at 1.1 billion KRW or less, which are excluded from the comprehensive real estate tax, was 98.8%.
The realization rate dropped to 53.5%, the same level as in 2020 (53.6%). The official price of the house in Hannam-dong, Yongsan-gu, owned by Shinsegae Chairwoman Lee Myung-hee, which ranks first in standard detached house official prices, will be 28.03 billion KRW next year, down about 9.87% from this year's 31.1 billion KRW.
Next year, the nationwide official land prices will also fall by 5.92%, marking the second largest negative rate of change, similar to standard houses. This is a decrease of 16.09%p from this year's 10.17%.
By city and province, the largest decreases were in Gyeongnam (-7.12%), Jeju (-7.09%), Gyeongbuk (-6.85%), Chungnam (-6.73%), and Ulsan (-6.63%). Seoul, which rose 11.21% this year, will see a rate of change of -5.86% next year, a decline rate lower than the national average.
By usage, forest land fell the most at -6.61%, followed by farmland (-6.13%), residential (-5.90%), and industrial (-5.89%).
The realization rate for official land prices was adjusted to 65.4%. Nature Republic in Myeong-dong, Jung-gu, Seoul, the most expensive standard land nationwide, maintained its top position for 20 years. However, the official price per square meter dropped about 7.88% from this year's 189 million KRW to 174.1 million KRW.
Tax Burden Reduction 'Positive'... Housing Market Activation 'Limited'
This downward adjustment of the official price realization rate has reduced the tax burden on the public. However, experts evaluate that it is limited in achieving short-term housing transaction activation and price rebound.
The government will maintain the policy of lowering the fair market value ratio for one-house owners at 45% for next year's property tax imposition, while reflecting the effect of official price declines due to falling housing prices and plans to further reduce it. The specific reduction rate will be finalized around April next year.
In the National Assembly, there are discussions to raise the basic deduction amount for the comprehensive real estate tax from the current 1.1 billion KRW to 1.2 billion KRW for one-house owners, and from 600 million KRW to 900 million KRW for multi-house owners, or to abolish the heavy taxation for owners of two or fewer houses in regulated areas.
Ham Young-jin, head of the Zigbang Big Data Lab, said, "Next year, with a low economic growth forecast of around 1% and the possibility of interest rate hikes linked to inflation still open, and with apartment supply (302,049 households) increasing by 50,000 households compared to this year, it will be difficult to quickly overcome the lack of demand," adding, "The government's move is interpreted as an attempt to soothe tax dissatisfaction caused by the steep rise in official prices over the past few years."
He continued, "With reduced holding taxes, concerns about selling prime areas will decrease, but with sharply increased interest burdens compared to the past and issues of acquisition tax and capital gains tax heavy taxation on multi-homeowners related to transactions, it will not be easy to frequently buy and sell or purchase additional houses."
Kim Hyo-sun, senior real estate expert at NH Nonghyup Bank, also said, "Reducing tax resistance is positive, but there are limits to leading to housing market activation."
He added, "Depending on the region, there may be judgments that the decline has not been sufficiently reflected in official prices. With a darker economic growth outlook than this year and the continuation of high interest rates, market activation due to various deregulations is unlikely in the near term."
Meanwhile, the Ministry of Land plans to continue close cooperation with local governments during the viewing period to improve accuracy. After hearing opinions from owners and local governments, the final announcement will be made on the 25th of next month after deliberation by the Central Real Estate Price Public Announcement Committee. Opinion submissions can be made online or in writing by the 2nd of next month.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
