The government will expand the 'second home' tax exemptions to areas of interest experiencing population decline, such as Gangneung and Iksan, and will raise the criteria for preliminary feasibility studies for social overhead capital (SOC) projects. This is a measure to invigorate the sluggish construction economy in local areas.
On the 14th, the Ministry of Economy and Finance and the Ministry of Land, Infrastructure and Transport announced a joint 'measures to strengthen local construction investment' at the economic ministers' meeting. The measures include 56 tasks such as ▲complementing local real estate demand ▲speeding up the execution of SOC budgets ▲preventing public project cancellations and delays ▲easing construction cost burdens.
The government is taking these measures because the recent construction downturn has prolonged. Construction investment has decreased for five consecutive quarters, and the proportion of construction investment to GDP has fallen from 15.7% in 2017 to 13.9% in 2024. Rising interest rates, increased raw material prices, and a shortage of labor have heightened the burden of construction costs, eroding profitability, particularly affecting new construction investment demand in the non-metropolitan housing market.
In response, the government will grant a 'second home' tax support exemption for one household buying an additional dwelling, expanding the subject from the existing population decline areas to those of population decline interest. Nine new locations are included: Gangneung, Donghae, Sokcho, and Inje in Gangwon Province; Iksan in North Jeolla Province; Gyeongju and Gimcheon in North Gyeongsang Province; and Sacheon and Tongyeong in South Gyeongsang Province. However, the easing of the housing value limit will be limited to population decline areas.
For population decline areas, the ceiling on the publicly announced price of target dwellings for second homes will rise from 400 million won to 900 million won, and the ceiling on acquisition tax exemption applicable to dwellings will increase from 300 million won to 1.2 billion won. Consequently, if the conditions for a second home are met, exemptions from capital gains tax, comprehensive real estate tax, and property tax can be maintained on existing dwellings.
The capital gains tax is subject to a tax exemption limit of 1.2 billion won and a maximum long-term hold special deduction of 80%, while the comprehensive real estate tax can benefit from a basic deduction of 1.2 billion won and a maximum 80% tax credit for seniors and long-term hold. Property tax rates will be reduced by 0.05 percentage points, and special provisions on the fair market value ratio will be granted. The acquisition tax will be reduced by up to 50% when a non-homeowner or homeowner acquires a second home in a population decline area.
A Ministry of Land, Infrastructure and Transport official noted, "The publicly announced price of 900 million won translates to a real transaction value of about 1.2 billion won," explaining that the price increase will support demand when construction companies build high-end villas or dwellings.
The tax burden for purchasing unsold dwellings in non-metropolitan areas will also be reduced. The exemption and heavy taxation exclusion regulations for one household one dwelling will be extended by one year until the end of 2026 when acquiring unsold dwellings after completion, and a 50% reduction in acquisition tax for individual buyers will be applied temporarily for one year. Moreover, corporate additional tax on capital gains for unsold dwellings after completion will be exempted to promote the purchase of CR REITs. The volume of unsold apartments purchased by the Korea Land and Housing Corporation (LH) in the provinces will increase from 3,000 units this year to a total of 8,000 units next year, with the purchase cap raised from 83% to 90% of the appraised value.
To expand SOC investments, a budget of 26 trillion won (including a supplementary budget of 1.7 trillion won) will be rapidly executed this year, and 400 billion won worth of projects planned by public institutions for next year will be advanced to be executed within this year. Long-term SOC investment plans, such as the 5th National Railway Network Development Plan and the 6th National and Provincial Road Construction Five-Year Plan, will also be established sequentially. To ensure the early commencement of 15 advanced national industrial complexes nationwide, administrative procedures will be shortened, and the corporate tax reduction period for corporations transferring from the metropolitan area to local industrial complexes will be extended to 8 to 15 years, with the sunset clause extended until 2028.
The preliminary feasibility study system will also undergo significant revision for the first time since its introduction in 1999. The criteria for SOC project preliminary feasibility studies will be raised from a total project cost of 50 billion won (30 billion won from the national budget) to 100 billion won (50 billion won from the national budget), and reforms of evaluation criteria for regional balanced development will be pursued by the first half of next year. To align construction costs with reality, unit price standards for different types of work during the preliminary feasibility study phase will be restructured, and the method of reflecting price adjustments will also be improved, applying the average value when the gap between the construction investment GDP deflator and construction cost index exceeds 4%.
Measures to prevent public project cancellations and delays will expand the major management categories from 315 this year to 569 next year to quickly reflect market prices. The bidding lower limit for small projects under 10 billion won will be raised by 2 percentage points, and the national contract law will be amended to compensate for on-site maintenance costs such as labor and rental fees for long-term continuous projects delayed due to national responsibility.
Measures to alleviate construction cost burdens were also included. An AI-based monitoring system will be established to stabilize the supply of key materials such as ready-mixed concrete and rebar, along with streamlining the permitting process for aggregate extraction. A new E-7-3 visa will be introduced to increase the use of foreign labor, and support will be provided to activate the skilled worker ranking system, including an artificial intelligence (AI) career design system. Regulations on smart construction technology, including relaxation of fire standards under off-site construction (OSC) methods, will also be eased.