Real estate market braces for tax hikesWith the market expecting higher property taxes soon, real estate in Korea has taken a tumble.
Last week, the average value of apartments in upscale Gangnam District, southern Seoul, fell 0.03 percent compared the previous week, while prices in adjacent Songpa District dropped 0.02 percent, according to Budongsan 114, a real estate information provider.
“We expect the market to remain still for the time being,” said Suh Seong-gwon, an analyst at Budongsan 114, “especially since the government will be announcing new comprehensive real estate taxes in a couple of days, and since the Democratic Party won the June 13 election in a landslide, we expect the Moon Jae-in government to continue its real estate regulations.”
This year, the comprehensive real estate tax on a 112.95 square meter (1,215.78 square foot) apartment in Gangnam’s Banpo-dong was 5.29 million won ($4,761), but next year, the same apartment could see the tax burden increase by as little as 140,000 won and as much as 1 million won.
The estimate is based on a proposal released to the public on Friday by a subcommittee on real estate regulations under the Presidential Commission on Policy Planning. The subcommittee proposed four distinct options: expand the taxable portion of real estate transactions; raise the comprehensive real estate tax rate; do both; or apply different taxes to people who own a single home and people who own multiple homes.
Based on the public feedback, the commission plans to select one of the options - or craft another one - and submit its final recommendation to the government on Thursday.
In the first option - expanding the taxable portion of a transaction - the subcommittee proposed gradually raising that portion from the current 80 percent to 100 percent by 2020. At 90 percent, the subcommittee estimates the government can collect 194.9 billion won in additional taxes. At 100 percent, it will be able to collect an additional 395.4 billion won compared to the current rate.
The second option involves raising the tax rate from a current maximum of 2 percent to 2.5 percent. The third option also involves a maximum tax rate of 2.5 percent, but the subcommittee also proposes gradually expanding the taxable portion by either 2, 5 or 10 percentage points each year.
Under the third plan, those that own multiple homes will likely see their tax burden increase by as little as 12.5 percent or as much as 37.7 percent.
The fourth proposal is to expand the taxable portion by 2 to 10 percentage points each year but maintain the tax rate at the current level for those that own a single apartment. For multiple-homeowners, both the taxable portion and tax rate will go up.
If the government accepts any of the four plans, the tax burden on owners of property exceeding 3 billion won in taxable value will rise significantly, according to a study by accounting firm Seokwang.
The owner of a 1 billion won apartment who currently pays 400,000 won in taxes, for instance, can expect to pay 50,000 won more next year and 100,000 won more the following year. (This is based on the assumption that the taxable portion expands by 10 percentage points each year.)
But for the owner of a 3 billion won apartment, the tax burden will have increased by 3 million won after two years.
Analysts do not believe the impact of the tax hikes will be as severe as many fear since the market has long been expecting tougher taxes, and the value of apartments, particularly in Gangnam, has risen so much that landlords can afford to pay the taxes.
BY LEE HO-JEONG, YEOM JI-HYUN [firstname.lastname@example.org]