[Reporter’s Notebook] Fluctuating Property Holding Tax by Administration Strengthens Faith in Unbeatable Real Estate

An acquaintance of mine sold an apartment in Apgujeong four years ago. At the time, he had already left his job, but decided to sell because the government announced it would raise the officially assessed value of properties to be closer to market prices, which was expected to significantly increase the burden of property holding taxes. Over the past four years, the price of that apartment has risen by nearly 3 billion won.

The government is set to announce a comprehensive real estate policy package this week. While it has been described as a "comprehensive and fundamental measure" (according to Democratic Party spokesperson Park Soo-hyun), no specific details have been revealed yet. Within the ruling party and government circles, there is talk of tightening loan restrictions and expanding regulated areas. Most observers believe that real estate taxation will not be addressed this time. This expectation stems from the previous Moon Jae-in administration’s experience, where efforts to strengthen holding taxes-represented by the comprehensive real estate tax-were seen as a reason for losing public support. Since any changes to the tax system are likely to provoke strong backlash, there is a prevailing sentiment within the ruling party to hold off, especially with local elections approaching next year.

The government or the ruling party may be sensitive about property holding taxes. However, in my view, leaving things as they are is also close to neglect of duty. This is because, in practice, the executive branch determines the tax burden. The comprehensive real estate tax is calculated by multiplying the officially assessed value-which is much lower than the market price-by the fair market value ratio. Currently, the official price realization rate is 69% for apartments and 54% for standard houses. When the fair market value ratio of 60% is also considered, taxes are being levied based on less than half the actual market price. The fair market value ratio was introduced in 2009 during the Lee Myung-bak administration, when the global financial crisis caused turmoil in the domestic real estate market.

The Constitution stipulates that tax items and rates must be determined by law. It was the courts that permitted the current comprehensive real estate tax structure, which goes against the principle of taxation by law. The Daejeon District Court ruled in 2022 that, given the complexity and variability of economic conditions, it is reasonable to delegate such matters to administrative regulations, and that the 60-100% range for adjusting the tax burden does not undermine predictability.

While the courts may have judged the matter according to legal principles, market participants have realized that the comprehensive real estate tax can be adjusted at the discretion of the administration. They now believe, "A progressive administration may increase the property holding tax burden, but we only need to endure for a few years," and "If the administration changes, the tax burden will be reduced again."

Regardless of whether property holding taxes are raised or lowered, it is necessary to correct a system where the tax burden fluctuates according to the administration’s preferences. The previous Moon Jae-in administration lost public trust not simply because of higher taxes, but because it frequently announced new measures and appeared indecisive. The current comprehensive real estate tax structure, which leaves room for the tax burden to be lowered at any time, can be understood in the same context. In a country like Korea, where real estate accounts for a large portion of household assets, it is essential to establish a stable and robust tax system.