South Korea's Ministry of Economy and Finance held a real estate tax policy forum on July 16 at the Bank Hall in Jung-gu, Seoul, where experts proposed shifting the comprehensive real estate tax basis from the number of homes owned to combined property value. Deputy Prime Minister and Minister of Economy and Finance Gu Yun-cheol attended the forum alongside approximately 60 participants including academics, experts, and citizens. The forum addressed debates over property holding tax levels, with some experts advocating increased tax burdens on non-residential and ultra-high-value homes while others argued South Korea's property tax rates already exceed OECD averages.
Experts Propose Comprehensive Real Estate Tax Reform Based on Property Value
Oh Jong-hyun, head of the Tax Research Division at the Korea Institute of Public Finance, stated that taxation based on property value rather than the number of homes better aligns with equity principles. Oh explained that a property value-based system could address issues related to ultra-high-value single homes. Regarding overall property holding tax policy direction, Oh mentioned that strengthening taxes on non-residential homes while maintaining or easing taxes on actual residences could be considered.
Ham Young-jin, head of Woori Bank's Real Estate Research Lab, suggested limited increases in property holding taxes. Ham proposed raising the fair market value ratio to 60% for property tax and 80% for comprehensive real estate tax, and recommended abolishing the 5% assessment cap on property tax. Ham stated that applying comprehensive real estate tax based on official price size rather than number of homes is appropriate, and suggested converting holding deductions to residence deductions applicable to actual residents.
Sim Chung-jin, professor at Konkuk University, stated that transitioning to a value-based system is reasonable if strengthening the redistributive function of comprehensive real estate tax.
Policy Recommendations Target Ultra-High-Value Homes
Lee Kwang-soo, representative of YouTube channel Gwangsu's Real Estate Agency, stated that effective tax rates should be significantly increased only for ultra-high-value homes, proposing 40 billion won as the baseline threshold.
Professor Sim stated agreement with the position that tax burden on ultra-high-value homes is low. Sim proposed that for homes with market values of 50 billion won (approximately 35 billion won in official prices considering the realization rate), deduction rates should be reduced by 10 percentage points for properties above this threshold to improve tax equity. Sim added that deduction rates should be capped at a maximum of 50%.
Moon Yoon-sang, research fellow at the Korea Development Institute (KDI), stated that property holding taxes in G7 countries are at much higher levels than South Korea. Moon stated that if stabilization means lower housing price volatility, property holding taxes clearly fulfill that role, and arguments for increasing property holding taxes are fundamentally based on strengthening property tax.
Regarding comprehensive real estate tax deductions, Moon stated that providing up to 80% flat-rate reductions on progressive comprehensive real estate tax is quite regressive. Moon proposed that instead of providing deductions to elderly or long-term holders, deferring payment until the home is sold or inherited would be better.
Counterargument Cites South Korea's Property Tax at 1.23% of GDP
Jin Chang-ha, professor of economics at Hanyang University, stated that South Korea's property holding tax as a percentage of GDP was 1.23% as of 2020, higher than the OECD average of 0.95%. Jin pointed out that it is difficult to view South Korea's property holding tax level as low.
Jin stated that South Korea's real estate transaction tax ratio also significantly exceeds the OECD average, at 1.89% of GDP as of 2022 compared to the OECD average of 0.46%. Jin emphasized that focus should be placed on housing supply and balanced regional development rather than tax systems.
Implementation Concerns Raised Over Rapid Tax Increases
Ham Young-jin stated that if real estate taxation is strengthened rapidly beyond market acceptability in the short term, side effects will inevitably occur. Ham cited locked-in inventory, decreased transaction volume, market rigidity, and tax transfer to tenants through monthly rent as potential problems.
FAQ
What did South Korea's Ministry of Economy and Finance discuss at the July 16 forum?
The Ministry of Economy and Finance held a real estate tax policy forum where experts proposed shifting the comprehensive real estate tax basis from the number of homes owned to combined property value, with approximately 60 participants including Deputy Prime Minister Gu Yun-cheol, academics, experts, and citizens attending.
What threshold did experts propose for ultra-high-value home taxation?
Lee Kwang-soo proposed 40 billion won as the baseline for significantly increasing effective tax rates on ultra-high-value homes, while Professor Sim Chung-jin suggested applying reduced deduction rates to homes with market values of 50 billion won (approximately 35 billion won in official prices).
How does South Korea's property holding tax compare to OECD averages?
Professor Jin Chang-ha stated that South Korea's property holding tax was 1.23% of GDP as of 2020, higher than the OECD average of 0.95%, and that South Korea's real estate transaction tax ratio was 1.89% of GDP as of 2022, significantly exceeding the OECD average of 0.46%.
