Property assessment rise shakes market

Advertisements for apartments up for urgent sale with the prices cut around 100 million won (＄89,130) at a real estate agency in Songpa District, southern Seoul, on Jan. 17. [NEWS1]

The rapid increase in the government-assessed value of standalone houses is not at all good for the property market, according to Lee Jong-ah, a senior researcher at the KB Financial Group research center.

It’s like pushing a person already running downhill.

On Thursday, the Land Ministry increased the government-assessed value for single-family homes 9.13 percent. In Seoul, the number is up 17.75 percent.

There’s a growing consensus in the market that the increase will hit an already hurting market, as property taxes are directly linked to the assessed value.

“The tax burden on houses will go up, and as a result, there will be an inevitable fall in demand,” said the senior researcher Lee at KB Financial Group.

KB Kookmin Bank Real estate expert Park Won-kap said there will be a particularly heavy burden on those who own multiple income properties and are planning to use the cash flow from them for retirement.

They are facing a one-two punch.

“Amid falling rents due to the oversupply of houses, the higher tax burden will be a major concern,” Park said. “This could impact other commercial real estate as well.”

The government-assessed value is used in the calculation of the local government property taxes and the central government’s comprehensive real estate tax, which is levied on real estate valued at more than 900 million won ($802,200).

The recent move is also raising concerns about possible changes in the assessed value of apartments, which the government will be announcing in April. Many are already speculating that the assessed value of apartments will jump, further affecting the real estate market. The real estate market has been facing difficulty since the government released cooling measures last September.

As of Jan. 21, apartment prices nationwide fell 0.08 percent compared to the previous week. Seoul properties have retreated at a faster rate of 0.11 percent. Seoul’s average apartment prices have fallen for 11 consecutive weeks.

Apartment transaction volumes are falling fast. Last month, apartment transactions totaled 55,681 units, which is 22.3 percent lower compared to the same month a year ago. Some experts believe while the higher tax burden will not have a major impact on the rich, it will affect others.

“Other than the high-end properties, cases in which the landlords are trying to sell their housing units far below the market value is expected to increase,” said Roh Tae-ug, a professor of real estate at Kangnam University.

Kim Eun-jin, head of research at real estate information provider Budongsan 114, said that most housing hitting the market will be in peripheral regions rather than in popular neighborhoods such as Gangnam District in southern Seoul and Yongsan District in central Seoul.

Some experts forecast resistance to the higher tax burden.

“Raising the assessed value as sharply as the government did will inevitably inspire tax resistance,” said Kwon Dae-jung, professor of real estate studies at Myongji University.

“Already, complaints are growing among homeowners,” said a realtor Kim Jong-uk in Songpa District, southern Seoul. “The issue could get even worse when they actually have to pay their taxes.”

Some market experts say landlords might pass their tax burden onto tenants by raising rents. But that may not be so easy as rents are already on the decline. Landlords increasing rents could lose tenants.

The problem is seen as a long-term trend. The government says that it plans to keep increasing the assessed value to close the gap between that number and the market value of properties.

The recent increase in the standalone house assessed values takes the ratio of assessed value to market value from 51.8 percent to 53 percent.

Land Minister Kim Hyun-mee on Friday once again argued that the higher assessed values do not significantly increase the tax burden for the majority of homeowners and that the changes mainly target owners of high-end properties.

During a radio interview on Friday, the minister said that in the case of the property tax, the maximum increase is 30 percent a year, while the comprehensive tax is capped at 50 percent.

“Because of the limit, taxes will not be raised significantly,” Kim said. “And those who are 65 years or older or have lived in the same house for more than 15 years may be qualified for a rebate of 70 percent, and as such, there wouldn’t be a huge tax burden.”

As for those owning multiple homes to fund retirement, the government is asking them to register as housing rental businesses.

“Once registering as a lease housing business, there are a lot of tax benefits,” Kim said.

She added that there’s also a changing attitude in the country over the comprehensive real estate tax, which was first applied in 2005 under the Roh Moo-hyun administration.

“As time has progressed, many of the people understand that the comprehensive real estate tax is a social responsibility that those who have more than others are obligated to take on,” Kim said.

She said while there have been reports that the higher government assessed value will lead to a “tax bomb” for high-end houses, she said society must consider the whole picture.

“I can say that until now those who lived in high-end standalone house have benefitted for many years,” from lower taxation, Kim said. “Yesterday’s government announcement is to correct the wrongs.”

She particularly emphasized that, until now, the government assessed value was only 51 percent of the market value, which is far lower than the ratio for multiunit housing, such as apartments, which is at 68 percent.

“There’s been nearly a 20 percent difference for those living in apartments and those living in standalone houses,” said Kim. Standalone house owners have been “paying less in taxes, and we are taking this opportunity to correct it.”

She gave an example of an apartment in Ulsan, where the market value is around 580 million won and the government assessed value is 420 million won. By comparison, she cited a standalone house in Seoul with a market value of 1.51 billion won and an assessed value of 380 million won.

“The difference in market values between the two is 1 billion won, and yet the apartment owner has to pay more,” Kim said. “This is because the assessed value study wasn’t properly done, and people living outside of Seoul have to pay more taxes than Seoulites living in high-end houses.”

She also said 98.3 percent of the houses in the country are valued at below 1.5 billion won.

BY KIM MIN-JOONG, LEE HO-JEONG [lee.hojeong@joongang.co.kr]