A tax break on unsold, completed homes outside the Seoul metropolitan area, set to expire at the end of this year, will be extended by one more year. The government's strategy is to curb price gains in the overheating capital-area housing market through tough property-holding taxes while continuing relief measures for regions where a chill persists.
According to the Ministry of Economy and Finance, the Ministry of Land, Infrastructure and Transport and other related agencies on the 9th, the government plans to include in its tax revision bill, to be announced at the end of this month, a measure to extend the application period of capital gains tax and comprehensive real estate tax breaks for buyers of unsold, completed homes outside the metropolitan area under the Restriction of Special Taxation Act, from the current end of 2026 to the end of 2027.
Under the current provision, if a single-home household additionally purchases an unsold, completed home outside the metropolitan area with an exclusive area of 85 square meters or less and an acquisition price of 700 million won or less, the household's existing home is still treated as that of a single-home household. Accordingly, when selling the existing home, the household can receive a tax exemption on the transfer value of up to 1.2 billion won, and the special long-term holding deduction is also applied at up to 80 percent. For the comprehensive real estate tax, the household is likewise recognized as a single-home household, receiving a basic deduction of 1.2 billion won and tax credits for the elderly and long-term holding on the existing home.
The government decided to extend the tax break because it judged that the slump in the regional housing market cannot be left unaddressed. According to the Korea Real Estate Board, apartment sale prices in the first half of this year (as of June 29) rose 3.21 percent in the metropolitan area and 5.11 percent in Seoul, while regional areas edged up just 0.17 percent. Major regional areas such as Daegu (-0.73 percent), Gwangju (-1.57 percent) and Jeju (-1.03 percent) declined.
In particular, unsold completed homes are markedly concentrated in the regions. As of May, of the 29,350 unsold completed homes nationwide, 24,522 were outside the metropolitan area, accounting for 83.6 percent of the total. The four areas of Daegu, South Gyeongsang, North Gyeongsang and Busan alone accounted for 43.1 percent of the nationwide volume. "If unsold regional homes accumulate, it can lead not only to a downturn in the construction economy but also to a weakening of consumer sentiment," a government official said.
Along with the unsold-home tax break, the government plans to extend the so-called "second home" tax break aimed at bolstering housing demand in areas such as population-declining regions. This is a capital gains tax and comprehensive real estate tax break that maintains single-home household status even when a household additionally purchases a home meeting certain requirements in a population-declining region, and it is scheduled to expire at the end of this year.
Earlier, the Ministry of Economy and Finance stated in this year's tax expenditure basic plan that it would eliminate unnecessary reduction schemes. However, the two tax breaks are expected to have their sunset extended amid concerns that the regional real estate market slump could spread to the construction economy and the broader regional economy.
The problem is that the more such exceptions are repeated, the more the standard distinguishing single-home owners from multiple-home owners could be shaken. While the principle is to vary tax burdens according to the number of homes owned, if breaks that exclude additionally acquired homes from the home count grow — citing reasons such as resolving unsold inventory or supporting population-declining regions — then cases where even the same two-home owner receives single-home owner breaks depending on the tax item and requirements will increase. While the need to support the regional housing market is great, the more exceptions accumulate, the more complex the tax system becomes and the lower taxpayers' predictability inevitably falls.
Hong Ki-yong, professor emeritus of business administration at Incheon National University, said, "Since a home is an asset to which taxation applies over a long period from acquisition to disposal, taxpayers must be able to predict their tax burden." He added, "Even if the tax break is extended, if people believe the property-holding tax or transfer tax system could change again in the future, demand to purchase regional homes will not easily move."
In particular, as long as tax relief and tighter property-holding taxes are pursued simultaneously, the structural complexity of the real estate tax system — in which tax burdens diverge depending on region and the number of homes — is unlikely to be easily resolved.
