Seoul: President Lee Jae Myung's recently announced real estate tax plan is causing significant anxiety among homeowners, as it introduces higher taxes that discourage property transactions and could exacerbate existing supply and rental challenges. The administration has previously conducted five policy forums on housing supply, finance, and taxation, vowing to incorporate a broad spectrum of market perspectives. However, the newly unveiled tax reform plan largely focuses on increasing taxes.
According to Yonhap News Agency, President Lee's initial promise to avoid using taxes as a tool for housing policy has been abandoned, as has the directive from Presidential policy chief Kim Yong-beom to prioritize the construction of more homes. The government's current approach shifts from expanding housing supply to raising the long-term burden of property ownership and transactions, effectively resulting in what critics describe as a "shut up and just raise taxes" strategy.
The government defends the tax changes as a normalization of property taxes, claiming they are low compared to other major economies, and asserts that genuine homebuyers will be protected. However, the reality appears different. The threshold for the comprehensive real estate tax on single-home owners is set to rise from 1.2 billion won to 1.4 billion won in assessed value, while the basic deduction for nonresident single-home owners will decrease from 1.2 billion won ($839,000) to 900 million won.
Additionally, the cap on annual increases in the tax burden will escalate from 150 percent to 200 percent, and the fair market value ratio is poised to increase from 60 percent to 70 percent next year. The tax rate on ultrahigh-end homes will nearly double, with rates on homes valued between 600 million and 1.2 billion won increasing from 1 percent to 1.3 percent.
The administration is also complicating the process of selling homes. Long-term capital gains deductions will be more heavily based on years of residence, accompanied by new limits on deductions. This approach contradicts the fundamental principle of a functional housing market: that rising property taxes should be offset by lower transaction taxes to encourage market activity.
Before taking office, President Lee had pledged to expand inheritance-tax deductions to prevent people from selling their longtime homes due to tax burdens. This promise is notably absent from the current plan. Without relief measures for transaction taxes or expanded inheritance-tax deductions, homeowners are left facing increased financial strains when owning, selling, or bequeathing their homes. These policies effectively impose punitive taxation on homeowners.
The potential consequences of this tax plan are considerable. In Seoul, the completion rate for apartments plummeted by 58.4 percent in the first half of the year, while the average jeonse (lump-sum deposit) exceeded 700 million won. Regulatory ripple effects are extending beyond southern Seoul to northern districts and the broader capital region, intensifying rental-market pressures.
Historical precedents from the Roh Moo-hyun and Moon Jae-in administrations demonstrate that housing markets cannot be stabilized through taxes alone. Ultimately, increased costs are likely to be transferred to tenants.
The proposed solution is straightforward. If property taxes are elevated, transaction taxes must be significantly reduced. Reconstruction and redevelopment should be promoted, and housing supply should be increased. Only through a consistent influx of new homes can the aspiration of homeownership be restored, prices stabilized, and the market normalized.
By attempting to exert control over the market, the government risks imposing a substantial tax burden on ordinary citizens.