Koreans have the highest real estate taxes in the OECD

Apartment complexes seen from Mount Namsan in central Seoul [NEWS1]

Koreans are paying the highest real estate taxes in the developed world.

After an endless series of measures by the Moon Jae-in administration designed to cool the property market and raise revenue, a wide range of apartment are attracting a dizzying array of expensive levies.

As a percentage of GDP, Koreans pay 6.274 percent in property taxes in 2021, according to analysis by Rep. Yoo Gyeong-joon of the People Power Party (PPP) released Friday. That is the highest of the 38 members of the OECD, where the average is 1.986 percent.

Of the OECD members, Britain came second at 4.337 percent, followed by Luxembourg with 4.021 percent, Canada at 3.962 percent and the United States at 3.884 percent. The figures for Australia and Greece were not included.

The study included property taxes (which captures inheritance taxes), property transaction taxes and capital gains taxes on property.

While most OECD countries have lowered their property taxes, Korea went the opposite.

The average ratio of property tax-to-GDP — excluding the capital gains tax on trading of homes and land — of OECD members fell from 1.833 percent in 2017 to 1.781 percent in 2021. Over the same period, that of Korea climbed from 2.964 percent to 4.502 percent.

Korea’s property tax-to-GDP ratio increased dramatically under the previous administration.

In 2017, when Moon took office, the ratio ranked fifth of the OECD countries. It jumped to No. 2 in 2018 and then to No. 1 in 2020.

The Moon administration came out with 28 sets of real estate cooling-off measures, centered on penalizing owners of multiple properties with higher taxes and discouraging purchases by stiffer loan regulations. But public discontent over the policies mounted as skyrocketing home prices drove up tax costs on homeowners and raised costs for people who seek to rent or buy homes.

“The rise of tax burden on taxpayers far exceeded the economic growth,” explained Rep. Yoo.

In 2021, Korea ranked first for taxes on transactions (2.596 percent) among OECD countries; second for taxes on the change of ownership of property through inheritance or gift (0.724 percent); and 12th for taxes on property, including comprehensive real estate tax and residence tax.

Korea’s No. 1 ranking in terms of transaction taxes is attributed to an increase in acquisition tax due to rising housing prices, coupled with panic buying in Korea's housing market following the Covid-19 outbreak when massive liquidity unleashed pushed up property prices.

“The government expected a scenario in which putting pressure on multiple-homeowners would increase the house supply and eventually bring down the housing prices — but it imposed acquisition and transfer taxes, blocking the way,” said Jun Jae-bum, a real estate studies professor at Kangwon National University. “In the end, multiple-homeowners kept their houses, which led to hiking housing prices.”

In acknowledgement of Korea’s housing problem, President Yoon Suk Yeol came out with measures easing the comprehensive real estate tax, acquisition tax and transfer tax. More recently, the Yoon administration lifted the real estate regulations put into place by the last administration, except in three districts below the Han River — Gangnam, Seocho and Songpa — and in Yongsan District.

“Like the global standard, transaction taxes should be lowered even if property ownership taxes grow in the long run,” said Kwon Dae-jung, a professor of real estate studies at Myongji University. “In particular, in a slump in housing market, the government should lift the burden of property taxes especially for single home-owners.”

“The new government is seeking a different stance for real estate policies, but the property tax burden, which is still high, should be brought down to the OECD average,” advised Rep. Yoo.

BY KIM KI-HWAN,SEO JI-EUN [seo.jieun1@joongang.co.kr]