Ruling Party Forum on Holding Taxes: "Hard to Stabilize Home Prices Without Tax Reform" [Real Estate A to Z]

Discussion on "The Paradox of a Smart Single Home: Measures to Normalize Real Estate Taxation"

On the 23rd, the ruling party argued that it would be difficult to stabilize housing prices without a tax overhaul that includes strengthening real estate holding taxes. With the end of the temporary suspension of heavy capital gains tax on multi-homeowners scheduled for May 9, the party has begun a public debate on the "normalization of holding taxes."

Jin Sungjoon, a lawmaker from the Democratic Party of Korea who serves on the National Assembly Strategy and Finance Committee, stated this in his opening remarks at the National Assembly forum titled "The Paradox of a Smart Single Home: Measures to Normalize Real Estate Taxation." The forum was co-hosted that day with Yoon Jongo, Floor Leader of the Progressive Party and member of the National Assembly's Land, Infrastructure and Transport Committee; Son Sol, lawmaker from the Justice Party; and the civic group People's Solidarity for Participatory Democracy. He said, "The discussion on normalizing real estate taxation, including holding taxes, is more urgent than ever." He went on, "The Lee Jaemyung administration has expressed its determination to put an end to the republic of unearned real estate income. We must show the market that, in taxation, principles come before exceptions if we are to restore trust in policy."

During the forum, Oh Gihyung, another Democratic Party lawmaker on the Strategy and Finance Committee, also stopped by the venue without prior notice. Oh, who said he had dropped in after seeing the topic of the forum in passing, remarked, "There is an ongoing debate about the extent to which we should intervene in the real estate market through taxation," adding, "Ultimately, from the standpoint of normalizing what is abnormal, rolling back excessive tax benefits is a position that is logically coherent in public discourse and socially persuasive." The fact that a ruling party member from the relevant standing committee paused his schedule to attend underscores how hot an issue holding taxes have become within the party itself.

"Transaction taxes should be lowered and holding taxes raised... Standards should be based on 'property value,' not number of homes"

Im Jaeman, a professor at Sejong University, is speaking at a roundtable titled "The Paradox of Owning One Prime Home: Measures to Normalize Real Estate Taxation," held on the 23rd at the National Assembly Members' Office Building in Yeouido, Seoul. Photo by Choi Seoyun

Im Jaeman, a professor at Sejong University and executive member of the People's Solidarity for Participatory Democracy's Livelihood Hope Headquarters, proposed a direction for real estate tax reform, saying, "Transaction taxes should be lowered and holding taxes should be raised."

Regarding the tax-exempt threshold for capital gains on a single home owned by one household (transfer value of 1.2 billion won or less), Professor Im asked, "Why 1.2 billion won, and on what basis was that set?" He argued, "It should be objectified as a certain multiple of the median price. The current median price is about 400 million won, so doubling that would give 800 million won." The tax-exempt threshold for capital gains on a single home owned by one household was previously 900 million won but was raised to 1.2 billion won in 2021.

On holding taxes, he said, "If the tax base is properly set, tax revenue can be increased without raising tax rates." He proposed a plan to align officially assessed prices with 80% of market value and to phase out the fair market value ratio. He also argued that, in the long term, the comprehensive real estate holding tax should be integrated into the property tax. By increasing the number of property tax brackets and applying progressive tax rates to homes priced above the median, "we can achieve the same economic effect as the comprehensive real estate holding tax while eliminating the controversy over double taxation."

Professor Im said, "Even though heavy capital gains taxation was waived for four years, properties did not come onto the market. Holding taxes were also lowered, so there is no reason to sell." He added, "During the Moon Jaein administration, the comprehensive real estate holding tax was raised, and there was a brief moment when properties were about to come onto the market, but it was quickly rolled back. We have never truly raised holding taxes properly."

He argued that the taxation standard should be shifted from the number of homes to the value of the homes, and that progressive tax rates should be strengthened. "The standard based on the number of homes stems from a political philosophy of regulating multi-homeowners, but from a tax perspective, property value reflects the ability to pay," he said. He added that land and buildings should be taxed separately, with the tax rate on land (progressive by bracket) set higher than the tax rate on buildings (a single proportional tax).

Benefits for single-home owners should be redesigned around actual residence... "Long-term holding deductions block listings"

On capital gains tax, Professor Im said, "Every detail has been designed to reduce taxes," and argued that, in the long term, capital gains should be included in comprehensive income tax, while benefits for single-home owners should be restructured around actual occupancy requirements, such as long-term residence and lifetime caps on taxable capital gains.

He said that the exclusion of registered rental business operators from heavy capital gains taxation "should ideally be abolished after a grace period." President Lee Jaemyung also hinted at a phased abolition earlier this month on social media, asking, "Is there any need to grant permanent preferential treatment even after the mandatory rental period has ended?" For multi-homeowners, he argued that registration should be made mandatory and tax benefits should be granted based on holding period, but that after the end of the rental business, capital gains tax should be imposed at normal rates.

The long-term holding special deduction, which President Lee Jaemyung has recently criticized in public, was also discussed. Regarding the long-term holding special deduction (up to 80%), Lee Seonhwa, Senior Research Fellow at the National Assembly Futures Institute, said, "Although it appears nominally to protect genuine end-users, in reality it creates a lock-in effect by reducing moves and mobility and freezing residence in order to gain tax benefits." She pointed out that excessive benefits block the turnover of homes in prime locations and lead to inefficiencies in resource allocation.

She presented simulation results showing that, for a single-home owner who realizes 1 billion won in capital gains over 10 years, the tax burden is only 0.5% to 6.1%, whereas a wage earner who earns the same 1 billion won over the same period must pay 11.2% to 35.0%. "We need to correct this gap if we are to resolve the 'smart single home' problem," she said.

"Low holding burden prevents resource reallocation"... Ministry of Strategy and Finance says it is 'reviewing value-based standards'

Participants pose for a commemorative photo at a roundtable titled 'The Paradox of a Strategic Single Home: Measures to Normalize Real Estate Taxation,' held on the 23rd at the National Assembly Members' Office Building in Yeouido, Seoul. From left: Yoon Suhyun, Director of the Property Taxation Division, Ministry of Economy and Finance; Kim Wonjang, host of Sampro TV; Lim Jaeman, Professor at Sejong University; Jung Seun, Professor at Chungnam National University; Yoon Jongo, Floor Leader of the Progressive Party and member of the National Assembly's Land, Infrastructure and Transport Committee; Kim Hyundong, Professor in the Department of Business Administration at Paichai University; and Lee Seonhwa, Senior Research Fellow at the National Assembly Futures Institute. Photo by Choi Seoyoon

Kim Wonjang, a former journalist and host of Sampro TV, said, "The property tax on an apartment worth 2 billion won on the market is about 3.7 million won, which means an effective tax rate of only 0.19%." On a monthly basis, this is around 300,000 won, so in effect there is no holding burden and thus no reason to sell. Regarding the phenomenon of people aged 65 and older holding homes in key areas of Seoul, he said, "This is not because they are being speculative, but because it is a rational choice under the principles of a market economy," adding, "Holding taxes are low, and there are additional deductions for long-term holding and for seniors, so even when income falls, it is advantageous to keep the home. This structure must be broken."

Kim Hyundong, a professor at Paichai University, said, "Numerous studies have confirmed a negative correlation between increases in holding taxes and housing prices," adding, "The burden of property tax tends to fall largely on capital owners, so the claim that it is passed on to tenants is not empirically supported." On the structure under which capital gains on a single home are entirely tax-exempt, he noted, "In the United Kingdom, the conditions for tax exemption based on actual residence are much stricter; for example, you must never have rented out the property. In Korea, we grant full exemption if you have lived there for just two years."

Yoon Suhyun, Head of the Property Taxation Division at the Ministry of Strategy and Finance, said, "There are parts of the real estate tax system that have become a 'pile-up' of measures," and added, "We basically agree with the direction of lowering transaction taxes and raising holding taxes." On the issue of standards based on the number of homes versus property value, she said, "When comparing two low-priced homes in a provincial area with one ultra-high-priced home in a prime location, questions of fairness are being raised," adding, "I think it is time to discuss these aspects as well."

The forum was held after President Lee Jaemyung finalized the decision to end the temporary suspension of heavy capital gains taxation on multi-homeowners. Once the suspension ends, owners of two homes in designated adjustment areas will face a 20-percentage-point surcharge on the basic tax rate, and owners of three or more homes will face a 30-percentage-point surcharge; the long-term holding special deduction will also be excluded. As the results of a research project currently being carried out by the Ministry of Strategy and Finance on adjusting holding and transaction taxes may be reflected in the tax law amendment bill in the second half of this year, discussions on holding tax reform are expected to intensify after the end of the temporary suspension of heavy capital gains taxation.