Property owners get big tax shock

Economy

Published: 24 Nov. 2020, 18:21 Updated: 27 Nov. 2020, 14:44

Property owners get big tax shock

A view of apartments in Gangnam District, southern Seoul, on Nov. 19. [YONHAP]

A 66-year-old man who lives in Mok-dong of Yangcheon District, western Seoul, was shocked recently after checking his comprehensive real estate tax bill. It was up sevenfold.

He owns two apartments including his current residence. They were purchased using severance pay, with rent from the second unit to be used for living expenses.

Last year, the bill was 100,000 won ($90) for comprehensive real estate tax. This year, it was 700,000 won. Next year, it will be about 1.5 million won.

“Some people might say the amount is so little for me as a person who owns two apartments. However, I’m really confused now receiving the bill when I’m not earning any money at the moment,” Park said. “I want to sell one, but then I'll be obliged to pay a large amount of capital gains tax, and I would lose a way to make a living.”

On Nov. 20, the National Tax Service started sending this year’s comprehensive real estate tax bills to homeowners. The homeowners can check the bills right away online, or they will receive the bills in the mail around Nov. 26.

The comprehensive real estate tax is a national tax targeting expensive residential real estate and some kinds of land. It is separate from property taxes levied by local governments.

Under the government’s comprehensive real estate tax regulation, the tax is levied yearly on June 1 on apartment whose government-assessed value exceeds 900 million won. But the tax also applies to individuals who own multiple apartments with a combined assessed value exceeding 600 million won.

The increase in the government’s assessed values of the real estate is the major reason behind the jump in comprehensive real estate tax.

The assessed values of all apartments this year rose 5.98 percent compared to the previous year. The rise in Seoul was the sharpest, where the change was 14.73 percent.

The situation is most evident in the Gangnam District, Seocho District and Songpa District, all in southern Seoul, and Mapo District, Yongsan District, and Seongdong District, along the northern side of the Han River. The assessed values of apartments that are priced 3 billion won or above there jumped nearly 30 percent on year.

About 700,000 to 800,000 property owners must pay the comprehensive real estate tax this year.

The amount of total tax collected also jumped. The collections amounted to some 4 trillion won, a 19.5 percent increase year-on-year.

The number of people liable to pay with the comprehensive real estate tax has risen rapidly under the Moon Jae-in government.

In 2017, when the Moon government began, no properties in Dongjak District, southern Seoul, were subject to the comprehensive real estate tax. However, roughly 2,982 are expected to be hit with the tax this year. Also, no apartment in Gangseo District, western Seoul, was subject to the comprehensive real estate tax in 2017 — but this year, 510 will be.

For a person who owns an 84-square-meter (904-square-foot) flat in the Mapo Raemian Prugio apartment complex in Mapo District, western Seoul, this year's comprehensive real estate tax obligation would come to about 320,000 won. A person who owns a same-sized flat in Godeok Raemian Hillstate in eastern Seoul has also become subject to comprehensive real estate tax.

People who own relatively expensive apartments are being hit hardest.

A homeowner who owns a 112-square-meter Acro River Park apartment in Banpo-dong in Seocho District needs to pay about 9.76 million won in comprehensive real estate tax this year. Last year, the tax obligation was only about 5.72 million won.

For a person who has a 235-square-meter flat in Hannam The Hill in Hannam-dong, central Seoul, which is trading at about 6 billion won, this year’s comprehensive real estate tax obligation would come to about 22.24 million won, up 45 percent on year.

“Particularly those who are aged or who had retired and have no other means to earn money will take a direct hit” Park Won-gab, a senior real estate analyst at KB Kookmin Bank, said.

Park also said “the homeowners who are heavily burdened by the taxes will be most likely to shift their jeonse [long-term housing rental deposit] apartments to monthly rents [to secure cash].”

The government in July announced its plan to raise the maximum rate of comprehensive real estate tax to 6 percent from the current 3.2 percent. The new tax rate will be applied starting next year.

For a person who only owns a single 120-square-meter apartment flat in Dogok Rexle apartment complex in Dogok-dong, Gangnam District, this year’s comprehensive real estate tax obligation will come to 2.73 million won. Under the new tax rate, it will be 5.09 million won next year.

A homeowner with a 119-square-meter apartment flat in Jamsil LLL's complex has to pay 2.22 million won of tax this year, and it will increase to some 4.4 million won next year.

The government in early November also announced that it will raise the assessed value of apartments, which will increase the tax bills. The plan is to raise assessed values to 90 percent of market price over the next 10 years.

Currently, 72.2 percent of the market value is used to arrive at the assessed value for apartments priced 900 million won or above, while 68.1 percent for apartments priced under that.

For instance, the assessed value of a flat worth 1.5 billion won is currently at 1.08 billion won, but it will increase to 1.35 billion won by 2025.

"As the assessed value tends to be lower for the low-priced properties, if the assessed value is to be raised to 90 percent of the market values, people who own low- and middle-priced apartments will face a heavier burden," said Ahn Myung-sook, a senior manager at Woori Bank’s real estate consulting center.

Woo Byung-tak, the head of real estate investment counseling at Shinhan Bank, agrees with Ahn.

“If [the government] wants to raise the comprehensive real estate tax, it must lower the rate of the transaction tax and offer people an escape in order for the stabilization in real estate market,” said Woo.

BY CHOI HYUN-JU, HAN EUN-HWA, KIM DO-NYUN AND CHEA SARAH [chea.sarah@joongang.co.kr]