Flood of Support Policies Encouraging Marriage and Childbirth... Changes in Real Estate System Next Year [Practical Financial Planning]

Full-Scale Revitalization of Maintenance Projects Including the 1st New Town Act
Relaxation of the Upper Range for Reconstruction Excess Profit Standards

Like the stock market, the real estate market operates as a kind of seesaw game. When there are many positive factors such as development and deregulation, the real estate market experiences a bull market, while a bear market unfolds when negative factors like economic recession and high interest rates prevail. From this perspective, 2024 is expected to lean more towards a bear market.

In such times, it is crucial to carefully examine the policies introduced by the government. Especially, it is beneficial to identify newly established benefits and sunset benefits in advance. Above all, since real estate-related taxes involve large sums of money, they must be managed beforehand.

Marriage and Childbirth Encouragement Support Policies Pouring In

Starting January next year, various government real estate support policies aimed at encouraging marriage and childbirth will be implemented. The most representative is the special purchase and jeonse loan system for newborns. Households without homes that have given birth to a child within two years from the loan application date (applicable from children born this year, regardless of marital status) can receive housing purchase funds or jeonse loan funds under better conditions than commercial banks.

For housing purchase loans, if the asset size is 506 million KRW or less and annual income is 130 million KRW or less, loans up to 500 million KRW for houses priced at 900 million KRW or less can be obtained at an interest rate of 1.6% to 3.3%. For jeonse loans, only households with assets of 361 million KRW or less and annual income of 130 million KRW or less can receive jeonse deposits. However, for houses in the metropolitan area, only those priced at 500 million KRW or less, and in provincial areas, those priced at 400 million KRW or less, can borrow up to 300 million KRW at an interest rate of 1.1% to 3.0%. The initial interest rate for both housing purchase and jeonse loans is applied for five years.

If an additional child is born, a 0.2 percentage point interest rate reduction per child is granted, and the preferential interest rate period is extended by five more years. This applies up to a maximum of three children. A new acquisition tax reduction is also introduced for housing acquired for childbirth and child-rearing purposes. When acquiring a house to live with the newborn child, acquisition tax is fully exempted up to 5 million KRW.

A system allowing additional deductions for gifted property upon marriage and childbirth has also been introduced. Currently, when parents transfer property to their children, no tax is imposed on up to 50 million KRW over ten years. Property gifted from direct ascendants within two years before or after the marriage registration date is additionally deductible by 100 million KRW. Thus, up to 150 million KRW can be deducted within four years before or after the marriage registration date. Combined for the couple, tax exemption can reach up to 300 million KRW. If childbirth occurs, an additional 100 million KRW deduction is allowed for property gifted within two years after the child's birth date.

Full-Scale Promotion of Redevelopment Projects Including the First-Generation New Town Special Act

From April next year, policies to activate and support redevelopment projects aimed at addressing aging housing and urban housing shortages will be promoted. The most notable is the First-Generation New Town Special Act (Special Act on Redevelopment and Support of Aging Planned Cities).

This legislation targets land sites of 1 million square meters or more that have been developed for over 20 years, offering benefits such as relaxed floor area ratio regulations and exemption from safety inspections. The applicable areas are mainly first-generation new towns (Bundang, Ilsan, Jungdong, Sanbon, etc.), metropolitan area land development districts, and regional hub new towns nationwide, totaling 51 areas (24 in the metropolitan area) and 1.03 million households.

The threshold for excess reconstruction profits will be raised from 30 million KRW to 80 million KRW. The taxable range will also be eased from 20 million KRW to 50 million KRW. Single homeowners will receive reductions in charges based on holding periods (70% for 20 years or more, 60% for 15 years or more, 50% for 10 years or more). Once the amendment is implemented, the number of reconstruction charge-imposing complexes nationwide is expected to decrease from 111 to 67, and the average amount will drop from 88 million KRW to 48 million KRW.

Additionally, to address the shortage of housing in urban areas, the government will revise and implement the “Act on Maintenance and Improvement of Urban Areas and Dwelling Conditions” to allow some of the housing built with relaxed floor area ratios in station areas to be used as public sale housing called ‘New:Home.’ Accordingly, when public sale housing is provided during reconstruction, semi-industrial areas will also receive legal maximum floor area ratio incentives. A system for requesting redevelopment plan formulation will also be introduced.

Furthermore, starting next year, developers who obtain early permits within one year after signing a public land supply contract will receive incentives when new public land is supplied. A certain portion of the lottery supply will be given priority supply opportunities, and the highest points will be awarded for competitive supply quantities.

Public land supplied by the Korea Land and Housing Corporation (LH) includes sites where apartments, multi-family housing, and mixed-use residential-commercial buildings can be constructed. Incentives will be given to developers who, after signing supply contracts for public land they already own or plan to receive, obtain housing construction project plan approval within 10 months, ahead of the usual 16-month period.

Special Bogeumjari Loan Discontinued and Life-Style Lodging Facility Grace Period Extended

The special Bogeumjari loan, implemented temporarily this year, is approaching its sunset. It was launched last year by combining existing policy mortgage products?Bogeumjari loan, eligible loan, and safe conversion loan?amid rising interest rates. It significantly expanded the conditions and scale of existing fixed-rate support policies to prevent excessive contraction of the real estate market. It enjoyed high popularity from the start but has also been identified as the main cause of the household loan increase for seven consecutive months recently.

In this situation, financial authorities are discussing with the Korea Housing Finance Corporation (HF) how to structure next year’s policy mortgage products. There is talk of splitting the special Bogeumjari loan back into Bogeumjari loan and eligible loan as before. The supply scale and eligibility conditions are also likely to change. The original supply target for the special Bogeumjari loan was 39.6 trillion KRW, but despite stopping general supply (house price over 600 million KRW and annual income exceeding 100 million KRW), the effective application amount reached 41.7 trillion KRW as of October 31. A lower supply target is expected next year.

The imposition timing of enforcement penalties for life-style lodging facilities (Saengsuk) that have not been converted to residential use has been postponed until the end of next year, considering the time required for lodging business registration and the remaining lease period of actual resident tenants. However, the government maintains the principle that Saengsuk are lodging facilities and draws a line against recognizing them as residential. Accordingly, alternatives demanded by Saengsuk owners, such as quasi-residential recognition, relaxation of use change standards, and exclusion of retroactive application, were all rejected.