The right way to revamp the rich taxThe government is discussing ways to include a change in the comprehensive property ownership tax in the revised tax code to be announced this week. Under the outline, the government proposes to scrap the surcharge on multiple homeowners to instead levy according to the value of each home.
The comprehensive property tax system under the Moon Jae-in administration was designed to impose punitive surcharge on landlords owning more than two homes. As a result, they faced higher tax rates of 1.2 to 6 percent compared with the basic rate of 0.6 to 3 percent for a single homeowner. The surcharge was introduced from 2019, the third year of Moon’s presidency.
The surcharge under the goal of stabilizing the housing market caused controversy over fair taxation and adverse effects on the market. An apartment in southern and central Seoul cost billions of won, or millions of dollars, but the levy can be lighter than the bill on those who owned more than two homes in outside of Seoul, despite their cheaper prices. As a result, multiple homeowners who provide rentals have come to transfer their high tax burden onto tenants by raising rent prices.
Multiple homeowners even disposed of their extra homes to own a single expensive apartment in Seoul to avoid the punitive tax. As a result, home and rent prices in Seoul shot up while the real estate market in other areas became sluggish. Former presidential chief of staff Noh Young-min, who resided in Cheongju, North Chungcheong, sold off his home in the small city while holding onto his apartment in Gangnam. Due to heavy tax burdens, people even demolished homes they inherited from their parents in provinces to leave just the land.
The real estate policy of the previous government generated various other problems. One is the confiscation of excess profit from redeveloped properties. The state takes away much of the profit gains after an aged apartment was reconstructed. Although the policy was purported to cap soaring apartment prices, it caused other problems. Due to the tax burden from their new apartment complex, aged apartment owners gave up reconstruction or put off the plan. New apartment supplies eventually thinned in Seoul amid a lack of space, fanning apartment prices in Seoul further. Residents of the old Eunma Apartment in Gangnam must endure rusty water pipes due to a delay in reconstruction.
President Yoon Suk-yeol promised to fix the excess profit seizure during his campaigning. The forcible nature of real estate policy under the previous administration had spiked home and rent prices. The real estate tax code should be revised. We urge the ruling and opposition parties to normalize real estate policy through bipartisanship.