The government's real estate tax reform plan has drawn criticism in the market that it "opened an exit but blocked the road out." While the plan overhauls the system by raising the burden of the comprehensive real estate tax and reducing capital gains tax benefits, it omits measures to invigorate transactions such as easing the acquisition tax, weighing heavily on homeowners and end-users alike, critics say. On top of this, concerns are emerging that lending restrictions and residency obligations have created "a structure where it is difficult to buy or sell a home unless you are cash-rich." There are also warnings that blocked transactions could lead to a listing freeze and instability in the jeonse (a Korean lease system requiring a large lump-sum deposit instead of monthly rent) and monthly rental market.
On the 4th, real estate market experts pointed out that while the tax reform plan gives homeowners who cannot withstand the tax burden a chance to sell, the biggest problem is that under the current market structure, they can "neither sell nor buy." End-users without funding capacity find it difficult to purchase homes because of high-intensity lending restrictions and residency obligations, while multi-home owners facing increased tax burdens are also unable to make additional acquisitions. One real estate expert said, "Only 'cash-rich' individuals with assets worth tens of billions of won, or 'Young Rich' with good parents, can step forward to buy," adding, "The current real estate market has a structure where normal transactions are impossible." He went on to note, "Right now, they have only created an exit but blocked the area outside it."
There is also an assessment that the reform plan lacks any notable measure to lower the transaction tax burden. While the acquisition tax and capital gains tax are considered transaction taxes, the capital gains tax has a strong character as an income tax levied on the profit from buying and selling a home. Last month, the Organisation for Economic Co-operation and Development (OECD) recommended that Korea enhance housing mobility through a revenue-neutral shift that lowers the burden of real estate transaction taxes and raises the share of holding taxes. However, this reform strengthened holding taxes and temporarily eased the capital gains tax but left the acquisition tax untouched. A real estate expert in the financial sector said, "Holding taxes have been raised without an accompanying easing of transaction taxes, which could lead to rising rents and a listing freeze."
Considering the capital gains tax and various transaction costs incurred after selling, it has become difficult to move again to a home in the same living area or of a similar level. In the end, a policy telling people to "sell" is inevitably received as meaning to leave the area or lower one's housing standard in practical terms.
The issue of policy consistency has also been raised. On May 9 this year, the government pressured multi-home owners to put their properties on the market by announcing the end of the moratorium on heavier capital gains taxes for multi-home owners. But in this tax reform, it changed the comprehensive real estate tax assessment standard from "number of homes" to a focus on "aggregate value."
Amid a supply cliff, the government sought to induce multi-home owners to release their existing housing stock onto the market and to stabilize home prices and invigorate transactions. But multi-home owners who trusted the government's word and moved to sell their homes are now voicing dissatisfaction with the changed government policy. From the multi-home owners' standpoint, the reaction is that "had we waited a little longer, we would have structured our assets differently," and that they cannot trust the government because they never know when or how policy will change going forward.
Tax experts pointed out that the most important value in taxation is predictability rather than tax rates, and that when the assessment standard for an asset like real estate — held anywhere from a few years to several decades — is flipped like turning over a palm, government policy cannot gain traction. As long as tax, financial, and supply policies point in different directions, the market will find it hard to move in the direction the government expects. One industry official stressed, "To restore market trust, first securing consistency among policies and predictability must come first."
The expansion of the lump-sum inheritance tax deduction and the spousal deduction, whose need President Lee Jae-myung had emphasized, was also omitted from the reform plan. At his 100-day press conference last September, President Lee said he would raise the lump-sum deduction from 500 million won to 800 million won and the minimum spousal deduction from 500 million won to 1 billion won, but the lump-sum deduction and spousal deduction applied to ordinary households were left unchanged.
