Ministry of Land, Infrastructure and Transport Announces 'Rationalization Plan for Real Estate Official Price Assessment System'
Abolition of Official Price Realization Plan...Selective and Improved Regional Balance
"Market Normalization"...Possibility of Increased Property Tax in Areas with Rising House Prices
#. The official apartment price for next year of Mr. Kim, who owns an apartment with a market price of 900 million KRW and an official price set at 622 million KRW this year, will decrease by about 18 million KRW compared to the previous year. It will be determined at 632 million KRW, which is the previous official price plus the applied apartment price fluctuation rate of 1.52%, adding only 9 million KRW, allowing for an expected effect of the official price reduction.
#. Mr. Lee experienced a double burden of loan interest due to falling house prices and taxes higher than the market price when the official price exceeded the market price last year. However, since the official price will be determined based on the previous year's official price and market fluctuation rate going forward, it is expected that the phenomenon of tax burden exceeding asset value can be prevented.
The government has abolished the 'Realistic Adjustment Plan for Real Estate Official Prices' and proposed a method to calculate official prices by reflecting market fluctuation rates. Instead of annually chasing the market price based on the market price (realization rate), the official price will be recalculated each year using the previous year's market fluctuation rate. As a result, in areas like Seoul and the metropolitan area where house prices rose this year, holding taxes are likely to increase next year. However, side effects such as official prices rising despite falling market prices are expected to disappear.
'Market Fluctuation Rate' Instead of Realization Rate
On the 12th, the Ministry of Land, Infrastructure and Transport announced the 'Rationalization Plan for Real Estate Official Price Calculation System' with these details. This implementation plan came after President Yoon Suk-yeol declared the abolition of the official price realization plan at the livelihood discussion meeting in March.
The government abolished the official price realization plan introduced by the previous administration to align market prices and official prices, and prepared this plan to ensure that official price fluctuation rates do not deviate significantly from market changes. The new official price formula is 'previous year's official price × (1 + market fluctuation rate)'. The market fluctuation rate is applied based on actual transaction prices or appraisal values. Applying this new formula allows official prices to fluctuate at levels similar to market value changes, which is advantageous for securing credibility. Since official prices are calculated based on levels before the realization plan was introduced, the possibility of actual transaction price reversal is also low.
According to this formula, the increase in official prices for apartments priced between 900 million KRW and 1.2 billion KRW will be significantly reduced. Assuming this year's apartment price fluctuation rate is 1.52%, the official price fluctuation in this range will also increase by 1.52%. However, under the current realization plan, it would increase by 4.52%.
The government will also select and improve regions and real estate where the balance of official prices is broken. Each city, county, and district will evaluate whether official prices are appropriate, and for real estate with excessively high or low official prices, the Central Real Estate Price Public Announcement Committee will review and recalculate the official prices. The recalculated official prices will be finally inspected by external experts such as university professors and then disclosed to the public. Currently, the Korea Real Estate Board (for housing) and appraisers (for land) calculate standard official prices, and local governments set official prices for individual houses and land based on these.
Nam Young-woo, Director of Land Policy at the Ministry of Land, Infrastructure and Transport, explained at a briefing held at the Government Sejong Complex, "The new system aims to remove artificial increases," adding, "It is not appropriate to set annual realization rate targets and keep raising prices regardless of market conditions." He also added, "Changing the calculation method does not mean the previous method was entirely wrong, but that it did not reflect the actual market situation."
Experts Say "Positive for Market Normalization"
The current official price realization plan was introduced in 2020 during the Moon Jae-in administration. At that time, the goal was to increase the realization rate annually until 2030 for apartments, 2035 for standard houses, and 2028 for standard land. The official price calculation structure causes official prices to rise even if real estate market prices hardly change, as the realization rate (market reflection rate) increases step by step every year. Especially last year, when house prices fell but official prices were maintained or increased, public dissatisfaction grew. Official prices are used as the basis for taxation of holding taxes (property tax and comprehensive real estate tax), health insurance premiums, basic pensions, and 67 other administrative systems.
To implement the newly announced plan and abolish the realization plan, legal amendments are necessary. Director Nam said, "We will focus as much as possible on balance and explain and persuade the National Assembly about the necessity," adding, "We need to prepare next year's official prices by November. Whether bipartisan consultation is possible will be specifically presented then."
Experts evaluated this plan positively from the perspective of market normalization. Ham Young-jin, head of the Real Estate Research Lab at Woori Bank, said, "The speed of reflecting actual transaction prices is expected to slow down somewhat compared to the previous roadmap, and the problem of sudden holding tax burdens is expected to ease," but added, "In areas like Seoul and the metropolitan area where actual transaction prices have risen, the increase in official prices may be higher than in other regions, so polarization of official prices by region is expected."
Lee Eun-hyung, a research fellow at the Korea Institute of Construction Policy, said, "It is positive for market normalization, but it is difficult to judge whether this alone will activate transactions," adding, "Even recent issues like household loan regulations have a more immediate visible impact on market transactions."
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