Property disclosures will not be used for tax, Hong says

Finance Minister Hong Nam-ki, center, speaks at a meeting on real estate at the government complex in Seoul on Thursday. [YONHAP]

Information on rental agreements that must be disclosed to the authorities under a new law will not be used for taxation purposes, Finance Minister Hong Nam-ki has confirmed.

Under the third of three tenant-protection laws passed last year, details about all rental or jeonse deals above a certain won amount will have to be registered, raising the possibility that the tax authorities could use the data to find hidden income.

Hong insisted that it is not the intent of the legislation and that the registration information would not be used by the tax authorities.

The purpose “is to increase the transparency of housing rents, to increase the convenience and to help achieve rational decisions in rent deals through the accumulated database on rent transaction information and the disclosure of such information,” he said.

“Some have raised concerns that the reported rent contracts would be used for taxation, and that would lead to higher taxes, which would be transferred to the tenants in the form of higher rents,” Hong said. “But we will not use it for taxation, which is not the purpose of this system.”

Hong also said that the government will continue to undertake measures to help cool the market, including measures related to loan restrictions and taxes.

“Due to the real estate policy and the uncertainty, prices have been rising,” Hong said on Thursday. “There is a growing speculation that the real estate market will again become uncertain in the second half due to the requirement of reporting rent contracts enacted this month and the heavy taxation of people owning multiple properties.”

The democratic party pushed through three tenant-protection laws last year. One requires the disclosure, the others require a one-time mandatory renewal of two-year jeonse contracts and the capping of price increases at 5 percent.

Two of the three were effective immediately. The law on registering contracts was effective a year later, on June 1.

Under the law, all jeonse above 60 million won ($53,900) and all rentals above 300,000 won a month have to be registered, either with the housing and land departments at local governments or via the Land Ministry's Real Estate Transaction Management System.

Either the landlord or the tenant has to make the report within 30 days of signing, though the law only applies to deals in the greater Seoul area, Busan, Daegu, Gwangju, Sejong and Jeju.

Prices have been rising recently.

According to the Korea Real Estate Board, the average jeonse price for apartments nationwide last month was 260.9 million won, which is the highest since the data were first compiled in 2012. They are up 25.7 percent since the beginning of the Moon administration.

Seoul’s average jeonse price was 493.5 million won, a record high.

The number of apartments available for jeonse has been falling. A total of 21,519 apartments were available for jeonse as of May 28, down 8.9 percent over two months, according to local real estate information provider Asil.

Capital gains taxes will be increasing for those owning more than one property. Starting this month, the maximum ceiling on the capital gain tax will be 75 percent, up from 65 percent, for those owning three or more apartments in designated areas.

The Korea Real Estate Board reported that the number of apartments in Seoul gifted to family members was 3,039 in April. That’s the most since July 2020, when that figure was 4,934, the month new property taxes were announced.

During Thursday’s meeting, Hong said the government will push for the swift implementation of regulations that would help stabilize the housing market. This includes upping loan-to-value (LTV) ratios for some mortgages and lowering taxes on apartments.

Under existing rules, the LTV is 10 percentage points higher for those who do not currently own a home, have a family income of under 80 million won and are buying a property costing less than 500 million won, or 600 million won in designated areas.

That has been increased to 20 percent.

The normal maximum for the LTV is set at 50 to 60 percent, meaning that some qualified buyers may be able to borrow 70 percent of the property price.

The government and the ruling party have also agreed to grant a special property tax discount of 0.05 percentage points to all properties valued at 900 million or under, up from the previous cap of 600 million won.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]