President Lee Jae-myung on the 23rd said at the "National Grand Debate on Real Estate Policy" that regarding real estate holding taxes, "Because if it bursts, it would be fatal, we must prepare for it even if it causes political damage." He said that to bring property tax and comprehensive real estate tax up to advanced-economy levels, they would have to be raised "at least threefold" compared with the current system, but considering the enormous practical resistance, the administration would craft a fine-tuned and differential taxation framework.
Lee said, "To bring Korea's holding taxes to typical advanced-country levels, we would have to raise them at least threefold," but added, "If we raise them that much right now, it would probably cause a situation close to a riot." Still, Lee said, "If we leave things as they are, we don't know which generation will be hit, but it will burst someday and deliver a huge shock to all of Korea," adding, "Because if it bursts, it would be fatal, we must prepare for it even if it causes political damage."
◇ Standard "one dwelling" benchmark: relief for owner-occupied and provincial homes vs. tougher rules for ultra-high-priced and multiple homes
At the debate, Lee proposed creating a phased differential tax system based on a "standard one dwelling." He said the aim is to lower the tax burden to protect one-dwelling owners who actually live there or provincial and working-class dwellings with limited capacity to pay, while increasing the tax burden on ultra-high-priced dwellings and nonresident multiple-home owners.
Lee said, "Based on a typical one dwelling, we will set an appropriate basic holding burden and grant relief benefits for dwellings used for actual residence, working- and middle-class dwellings, and provincial factors." In contrast, he said, "We are considering placing weighting factors and phasing in differentiation for luxury and ultra-high-priced dwellings, multiple dwellings, and nonresident dwellings with clear speculative purposes."
◇ Change the term from "actual residence" to "residential use"
Regarding the "one dwelling for actual residence" eligible for tax benefits, he also suggested changing the term to "residential use." Lee said, "At a Cheong Wa Dae meeting I said, 'Let's change the terminology going forward,'" adding, "When we say 'one dwelling for actual residence,' many ask what people are supposed to do if they temporarily move for work, children's education, hospitalization, and the like. In my case, because I am in the official residence at Cheong Wa Dae, my home is empty, so there are criticisms like, 'You're nonresident, not actual resident.'"
The idea is that if someone owns one dwelling for the purpose of actually living there but, for reasons such as work or children's education, resides for a short period somewhere other than the owned dwelling, the person should receive the same benefits as for "one dwelling for actual residence." However, the government needs to establish an institutional framework to verify that it is in fact an "unavoidable nonresidence" situation.
Lee said, "If you hold it for residential purposes but, due to other circumstances, are not residing there briefly, shouldn't this be treated the same as actual residence?" adding, "In the meeting I said we should stop calling the classification criterion 'actual residence' going forward."
The specific details of differential taxation and the level of an "appropriate tax burden" will be decided after a public comment process. Lee said, "Differentiating factors such as whether it is lived in, the number of dwellings, price range, and regional factors are very diverse," adding, "I want to hear vivid opinions from experts and the public on what level would be appropriate."
◇ On the proposal to "deduct part of the holding tax from capital gains," he said, "That makes sense"
Lee responded positively to a panelist's proposal to reduce the tax burden by deducting part of the dwelling holding tax from capital gains. The idea is to recognize the holding tax as a so-called "necessary expense" in the process of calculating capital gains tax. This would mean that even if the holding tax is strengthened, a certain adjustment could be made so that the burden of capital gains tax does not pile on when selling a dwelling.
Lee said, "It also makes sense to recognize the holding tax as a necessary expense when calculating capital gains," adding, "It's something to consider later. That way, from the taxpayer's perspective, it would feel less unfair."
He also agreed with the view of opening a "temporary exit" when multiple-home owners put properties on the market. The thinking is that if only the holding tax is raised while maintaining heavier capital gains taxes, "lock-in" of listings could worsen. Lee said, "The opinion that we should strengthen the holding tax while opening an exit also makes sense," adding, "However, we must consider over what period and to what extent to provide an opportunity so that those who disposed of dwellings in reliance on past government policies do not feel they suffered a loss."