"50 Million Won Holding Tax on a 5 Billion Won Apartment"... Housing Price Stabilization vs. Market Instability Tension [Real Estate AtoZ]

Koo Yooncheol, Lee Sangkyung, and Jin Sungjoon Spark Heated Debate with Calls for Higher Taxes on High-Priced Homes
Low Tax Rate vs. Heavy Burden: Holding Tax Impact Varies by Criteria
Tax Burden May Be Shifted, Leading to Rising Jeonse and Home Pri

Senior government and ruling party officials are increasingly fueling discussions about raising real estate holding taxes. Deputy Prime Minister and Minister of Economy and Finance Koo Yooncheol recently stated, "If we were to set the property tax at an average of 1% like in the United States, the holding tax alone on a house worth 5 billion won would amount to 50 million won per year," adding, "With such a burden, it would not be easy to own a high-priced home." Lee Sangkyung, the First Vice Minister of Land, Infrastructure and Transport, and Jin Sungjoon, a lawmaker from the Democratic Party of Korea, have also emphasized the need to strengthen holding taxes, drawing significant attention from the market.

These remarks are interpreted as an attempt to increase the tax burden on owners of high-priced homes, thereby encouraging them to put their properties on the market and, in turn, absorb market liquidity to stabilize housing prices. The holding tax refers to the combined burden of property tax (a local tax) and the comprehensive real estate tax (a national tax), representing the actual cost of owning a home as experienced by the public. However, there are sharply divided forecasts regarding the appropriateness of the current holding tax and the effects of tax adjustments.

The effective tax rate is low, but the tax burden is high... Interpretation varies by standard

Apgujeong Hyundai Apartment. Photo by Hyunmin Kim kimhyun81@

According to the 'Analysis of Effective Real Estate Holding Tax Rates in OECD Countries' released last month by the Land+Liberty Research Institute on October 21, South Korea's effective holding tax rate stands at 0.15%, less than half the OECD average of 0.33%. This ranks South Korea 20th among the 30 countries surveyed. The institute pointed out, "The effective tax rate has further declined due to the Yoon Sukyeol administration's tax rate reductions," and noted, "This inevitably leads to controversy over tax fairness for owners of high-priced homes."

In contrast, the Korea Local Tax Institute reached a different conclusion in its 'Local Tax Policy Report No. 115' published last year. According to the report, South Korea's holding tax in 2022 amounted to 1.23% of GDP and 5.15% of total tax revenue, both higher than the OECD averages (0.97% of GDP and 3.75% of total tax revenue). In this case, the total tax burden is measured as the proportion of holding tax within the country's overall tax revenue structure, not as the individual burden on taxpayers. The institute assessed, "The holding tax is already above the OECD average."

The discrepancy between the two institutions' analyses stems from differences in their standards. The Land+Liberty Research Institute used the 'effective tax rate,' based on the actual amount paid relative to the officially assessed property value, while the Korea Local Tax Institute focused on the 'revenue share' within the national tax structure. The former reflects the taxpayer's perceived burden, while the latter indicates the government's fiscal contribution, resulting in contrasting interpretations.

Additionally, in South Korea, real estate accounts for over 70% of total assets, a very high proportion. As a result, some argue that, despite the actual amount of tax paid not being small, the sheer scale of taxable assets creates the illusion of a low effective tax rate.

"Inducing listings→Stabilizing prices" vs. "Passing on the burden→Rising prices"... Experts remain divided

Opinions are also split regarding the effects of strengthening the holding tax. Proponents argue that increasing the tax burden will prompt multi-homeowners to list their properties, and if accompanied by a reduction in transaction taxes, it can help stabilize the market. Recent remarks from government and ruling party officials are based on this logic. Lee Kwangsoo, CEO of Kwangsoone Real Estate Agency, said, "The holding tax serves a corrective function," adding, "When the tax burden rises, investment returns fall, the number of investors decreases, and this ultimately contributes to stabilizing home prices." He also noted, "The comprehensive real estate tax applies only to about 500,000 people at the top, so its impact on the rental market for ordinary people is minimal," and added, "Strengthening the holding tax in parallel with supply policies is the way to maximize policy effectiveness."

On the other hand, opponents point out that the tax burden may be passed on to tenants, potentially increasing market instability. The Korea Association for Economic Development warned in its 2022 report, 'Cash Flow-Based Dynamic Housing Market Model,' that "an increase in the holding tax leads to higher jeonse (lump-sum deposit lease) prices, and heavier capital gains taxes result in fewer properties being listed," concluding, "This can have the unintended effect of pushing up both rental and housing prices." Kim Hyosun, Chief Real Estate Specialist at NH Nonghyup Bank, commented, "The comprehensive real estate tax is subject to significant variation depending on the administration, making it a highly unstable tax item," and added, "Currently, if the fair market value ratio and the official property price realization rate are raised, the tax burden will naturally increase. Premature talk of tax hikes could further overheat the market." She also said, "The effects of the October 15 policy package have yet to become apparent, so further discussion of holding tax increases is premature at this time."

Meanwhile, the government is forming a task force to discuss a comprehensive restructuring of the real estate tax system. While there is consensus on the broad direction of strengthening the holding tax and lowering transaction taxes, considerable difficulties are expected regarding the details and timing of implementation. Park Wongap, Chief Real Estate Specialist at KB Kookmin Bank, predicted, "With the elderly accounting for more than half of comprehensive real estate tax payers, tax resistance is likely to increase. Strengthening the holding tax will probably be postponed until after next year's local elections, and actual implementation will likely take place after 2027."