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A tax bomb on property

Published: 24 Mar. 2021, 19:40

Public rage over the changes in the appraisal value of multi-residential housing is brewing. Residents are collectively protesting to the adjusted rates, including on Jeju Island where re-examination is being demanded as the average appraisal value went up 1.72 percent even as housing prices fell 1.95 percent last year. The average nationwide rate gained 19.08 percent on year, which would push up property and comprehensive real estate taxes. The basis of the evaluation is being questioned due to randomness and incongruities.

For instance, two units of the same size on the same floor in an apartment in Nowon District, western Seoul, were appraised differently. Although prices posted in realtors in the neighborhood were the same, one was appraised at 891 million won ($786,000) and the other 910 million won. The latter would be subject to comprehensive tax surcharge levied on homes valued over 900 million won. A flood of complaints come from Sejong City which recorded the highest on-year surge of 70.68 percent in appraisal value. An apartment complex filed for a class appeal after the appraisal value of their units jumped 133 percent simply based on one or two trades throughout last year.

How the value was measured is unclear. The government says it has accurately reflected the adjustments of market value. But there is a huge gap between the 3 percent gain posted by the Korea Real Estate Board (formerly Korea Appraisal Board) of average Seoul home prices last year and the 19.91 percent jump in the appraisal value in the capital this year. District chiefs and community heads are protesting the lack of transparency, professionalism and neutrality in the appraisal rates.

Appraisal value has long been an issue of contest. A court in 2007 ordered nullification of appraisal value by siding with plaintiff claims about unjustness in valuation. In 2019, appraisal value had to be adjusted for an entire 230-family apartment complex in Seongsu-dong in Seoul. The appraisal value of the apartment complex that had surged went lower than the previous year after a collective complaint suit from residents.

Property appraisal value becomes the basis for tax levies and premium rates of self-covered medical insurance as well as various welfare benefits. It therefore must be transparent and convincing. Despite policy failures each year, authorities have not taken measures to amend them. The government offered to publish the reference materials for its measurement next month. It must supply all the necessary materials to convince the people, or otherwise risk strong tax resistance.