[Practical Finance] Declining Appeal of Officetel Investments, The Problem Is Taxes

Included in the number of houses since August 2020
Existing single-homeowners face tax surcharges when purchasing
Yet acquisition tax remains high based on non-residential criteria

One of the main reasons why the officetel market is still facing a cold wind despite the recovery of real estate buying sentiment is 'taxes.' Officetels gained popularity as an alternative to expensive small apartments during the recent housing price surge, attracting investment demand. In response, the government, eager to curb rising real estate prices, amended the Local Tax Act to significantly increase the tax burden on officetel ownership, emphasizing protection for actual homebuyers and the eradication of speculation. Since August 2020, officetels used for residential purposes have been included in the count of owned housing units. After the tax law revision, those without homes became homeowners upon purchasing an officetel, and one-home owners became subject to various tax surcharges.

Officetels are income-generating real estate. Some people use them to prepare for retirement, while others seek to raise funds for their children's education. If you want to secure stable rental income, you must carefully consider the tax aspects, which could become variables in the future, before investing.

Officetels are subject to a flat acquisition tax rate of 4.6%, regardless of the number of existing homes owned. This is because it is not possible to distinguish whether the property is for residential or commercial use at the time of acquisition. Therefore, the acquisition tax consists of the general acquisition tax rate of 4%, plus a 0.2% special rural tax and a 0.4% local education tax, totaling 4.6%.

It is important to note that when purchasing a general home, any officetel currently owned is included in the housing count, which determines the acquisition tax rate. If you own an officetel, purchasing a home such as an apartment or villa may subject you to acquisition tax surcharges. Currently, the highest acquisition tax rate for multi-homeowners is 6%. However, officetels acquired before the August 2020 tax law revision and those with a publicly announced price under 100 million KRW are not included in the housing count.

Since officetels are included in the count of owned homes, homeowners may also face increased capital gains tax or comprehensive real estate holding tax.

If you own only one officetel and meet the one-household one-home tax exemption conditions (holding for more than two years, transfer price under 1.2 billion KRW, and two years of residence if the property is in a regulated area at the time of acquisition), there is no tax on the sale of the home. However, if a homeowner purchases an additional officetel and rents it out for residential purposes, the capital gains tax upon sale will be calculated by combining the existing homes, applying the multi-homeowner surcharge rate. Unlike acquisition tax, officetels with a publicly announced price under 100 million KRW are included in the housing count. Similarly, if the total publicly announced price of homes including officetels exceeds 900 million KRW, the property may be subject to comprehensive real estate holding tax.

As a result, officetel owners have recently been demanding that officetels be excluded again from the count of owned homes. They face the paradox of paying high taxes when buying because officetels are considered non-residential, but being treated as residential properties subject to various tax surcharges when selling. A real estate industry insider explained, "Moreover, officetels are classified as commercial facilities under the Building Act, so loan interest rates are even higher than for general homes. However, since various issues are intertwined, the government is hesitant to ease regulations."