[2023 Economic Policy] Rental and Multi-Homeowners Return to Market... LTV 30% Allowed in Regulated Areas, Acquisition Tax Eased

The government will embark on full-scale innovation in real estate and corporate regulations starting from the new year. It plans to significantly reduce real estate-related taxes such as acquisition tax and capital gains tax, and ease loan regulations to revive the frozen real estate purchasing demand. By normalizing excessive and punitive real estate regulations, the government aims to boost market vitality and secure future growth engines through groundbreaking incentives and growth strategies. Under the principles of freedom and innovation, the government has set a new economic policy direction to overcome the complex crisis by stimulating the economy centered on the private sector.

On the 21st, the Ministry of Economy and Finance announced the '2023 Economic Policy Direction' containing these details. The four major pillars of next year's economic management set by the Yoon Seok-yeol administration are freedom, innovation, fairness, and solidarity. While the previous Moon Jae-in administration led economic policies through regulations and government initiatives, this government plans to overcome the crisis and lay the foundation for economic re-leap by easing regulations and activating private investment. The detailed tasks for this include macroeconomic stability management, recovery of the livelihood economy, enhancement of private-sector vitality, and improvement of future readiness.

Relaxation of Regulations on Multi-Homeowners... Paradigm Shift

The core of this economic policy direction is 'deregulation.' The abolition of 'real estate regulations' that greatly increased during the rapid rise in housing prices until last year is representative. First, the government decided to boldly discard the previous administration's paradigm that 'multi-homeowners are the main culprits of housing price increases.' The system of imposing acquisition tax surcharges on multi-homeowners when purchasing houses will be eased, and the exclusion of capital gains tax surcharges, which is currently deferred until May next year, will be extended for another year. The capital gains tax rate imposed when multi-homeowners sell pre-sale rights, houses, or occupancy rights within one year will be lowered to 45%, and if sold after one year, the basic tax rate (6-45%) instead of the surcharge rate will apply.

Loan regulations, the biggest obstacle to real estate purchases, will also be eased. Even if multi-homeowners purchase houses in regulated areas, mortgage loans will be allowed up to a loan-to-value ratio (LTV) of 30%. This is expected to increase real estate demand as multi-homeowners can purchase additional houses without significant burden. The government plans to additionally lift regulated areas early next year for not only multi-homeowners but also genuine buyers, and rationally reduce the scope of private land subject to the price ceiling system.

Enhancing Real Estate Project Feasibility to Revitalize the 'Capital Market'

Complex actual residence and resale restriction systems will be reverted to the level of five years ago. Measures such as mandatory moving-in within three months for mortgage loans aimed at returning lease deposits on houses exceeding 900 million won, the 200 million won limit on mortgage loans for living safety funds, and the 200 million won limit on mortgage loans for returning lease deposits on apartments exceeding 1.5 billion won will be significantly eased. Additionally, the 'officially assessed price rationalization plan,' which is the cause of the sharp increase in tax burdens, will be improved by the second half of next year, and regulations on reconstruction safety inspections will be greatly relaxed, such as lowering the weight of structural safety items from 50% to 30%.

As a result, the burden of property tax and comprehensive real estate tax linked to the official price will decrease, and the feasibility of reconstruction projects will improve, enhancing market liquidity. In particular, the risk of insolvency in the real estate project financing (PF) market, which has recently acted as a trigger in the short-term capital market, may also decrease. In the same context, the government will expand the Korea Housing & Urban Guarantee Corporation (HUG)'s real estate PF guarantees by 5 trillion won and newly establish unsold PF guarantees of 5 trillion won to be implemented in January next year. Nevertheless, if refinancing difficulties continue, a business guarantee that can convert PF-asset-backed commercial paper (ABCP) short-term loans into long-term loans will also be newly established.

Leap to a Top-Tier Nation... Promotion of 'New Growth Strategy'

Since next year's government economic policy direction is based on freedom and innovation, regulatory innovation and investment promotion measures for free corporate activities are also expected to be actively pursued. Through a presidential export strategy meeting, export competitiveness enhancement plans focusing on five major sectors will be prepared by the first half of next year, and with the goal of securing 50 billion dollars in annual orders and entering the world's top four construction powers, public-private joint package support will be strengthened.

Companies will be encouraged to invest through groundbreaking tax and financial incentives. The deduction rate for increased investment next year will be raised to 10%, and a total of 50 trillion won, the largest ever, will be supported for facility investment funds to create a 'business-friendly environment.' National strategic technologies will include semiconductors, batteries, vaccines, and additionally displays. Especially, to enhance economic sustainability, the government will accelerate national tasks such as labor, education, and pension reforms while also promoting three major economic innovations in finance, services, and public sectors.

The government has also prepared the 'New Growth 4.0 Strategy' for leaping to a top-tier nation. The purpose is to secure future industrial base growth engines by promoting projects closely related to citizens' lives centered on the private sector. To this end, 15 tasks such as future mobility, quantum technology, and bio-innovation were selected in three major areas: technology, daily life, and market. Kim Beom-seok, Director of Policy Coordination at the Ministry of Economy and Finance, explained, "We plan to organize and operate a New Growth 4.0 Strategy meeting chaired by the Deputy Prime Minister," adding, "From the first half of next year, we will announce measures containing key projects and institutional improvement plans by sector."