Rental income tax plan up for some fine-tuning

The government is pushing to give tax benefits to owners of more than three houses as a matter of fairness, according to Suh Seoung-hwan, minister of land, infrastructure and transport.

The minister said at a meeting with local construction companies yesterday that it is not desirable to discriminate based on the number of houses owned.

In February, the government announced its plan to tax property owners who rent out their apartments. The intention was to lower the financial burden for landlords by taxing rental income at a lower rate.

The plan was to apply a fixed 14 percent tax rate on rental income of up to 20 million won ($19,579) per year from a maximum of two properties.

However, that required landlords for the first time to report their income from rents to the tax authority, which made many of them feel as if they were paying more in taxes.

A week later, the government said that, to be fair, it would apply the same method of taxation to income from jeonse.

There was immediate opposition, but the government emphasized that the market saw it as another tax increase rather than a way to boost sluggish real estate sales.

This served to weigh on the recovering real estate market, which the ministry acknowledged.

“The government is considering measures to minimize the impact of the policy on the market,” said Suh. “Potential buyers and sellers are just watching the market after the taxation announcement because they feel like they shouldn’t pay new taxes.”

Transactions in the Seoul metropolitan areas fell to 43,002 from 43,921 in March.

In Seoul, apartment sales fell 11 percent in April compared to March after the Sewol ferry disaster.

A Dr. Apt real estate portal index that measures market confidence based on number of transactions fell 14.4 points to 71.6, the lowest since last July. The portal surveyed 451 real estate agencies from April 21 through May 16.

The minister said the same method should be applied to owners of more than three houses.

“The latest measure is contrary to the government’s recent efforts to normalize the market by eliminating doubled capital gains taxes on multiple homeowners and higher acquisition tax rates for them,” Suh said. “There is a need to discuss if it is right to discriminate based on the number of houses owned.”

BY SONG SU-HYUN [ssh@joongang.co.kr]