The government has kicked off an overhaul of the real estate tax system.
According to relevant ministries on Oct. 19, the government has launched a task force (TF) with the Ministry of Economy and Finance (comprehensive real estate tax and capital gains tax), the Ministry of the Interior and Safety (property tax and acquisition tax), and the Ministry of Land, Infrastructure and Transport (officially assessed prices) to begin mid- to long-term discussions.
The overall blueprint is likely to be included in the 2026 tax reform plan, to be announced after the local elections in June next year. Inside and outside politics, there is talk of strengthening holding taxes (comprehensive real estate tax and property tax) and lowering transaction taxes (acquisition tax) to increase real estate transactions.
The problem is local government revenue. Acquisition and property taxes are the backbone of local finances. Last year, acquisition tax was about 26 trillion won, accounting for 22.8% of total local government tax revenue, and property tax reached 15.1 trillion won. In contrast, the determined tax amount for the housing portion of the comprehensive real estate tax, a national tax, was only about 1 trillion won. This means that even if the comprehensive real estate tax rate is raised sharply to lower home prices, it will be far from enough to offset the decline in local tax revenue caused by cutting the acquisition tax.
To minimize the revenue shock, discussions are likely to move toward also raising the property tax, which affects the entire population. The increase in holding taxes is expected to be carried out by adjusting the fair market value ratio (fairness ratio) and the ratio for aligning officially assessed prices with market values.
This year, the average market-alignment ratio for officially assessed prices of multiunit dwellings is 69%, and the fairness ratio for the comprehensive real estate tax on single-home owners is 60%. There is talk of restoring the fairness ratio—lowered from 80% to 60% under the Yoon Suk-yeol administration—to its original level, and reviving the "officially assessed price roadmap" from the Moon Jae-in administration to raise the alignment ratio.
The tax regime that sparked the "one smart home" phenomenon, favoring a single high-priced dwelling, is also headed for surgery. A likely approach is to increase the tax burden on a single high-priced home by reducing benefits such as the special long-term holding deduction for one household with one home and the special deduction for seniors.