The government has introduced a measure applying the 1 household 1 dwelling exception when calculating capital gains and comprehensive real estate tax for individuals with one home who purchase unsold dwellings in the provinces after completion starting this year, leading the real estate development industry to evaluate it as a policy that helps improve the challenging market situation.
According to the construction industry and the Ministry of Land, Infrastructure and Transport on the 9th, the government noted on the 8th that it will carry out legislative tasks for stabilizing the local real estate market without any setbacks within the first quarter of this year. First, to resolve unsold dwellings in the provinces, they plan to apply the 1 household 1 dwelling exception when calculating capital gains and comprehensive real estate tax for individuals with one home who purchase unsold dwellings after completion from January 1 of this year. Additionally, starting this year, when individuals with one home purchase a dwelling in a population decline area, property, capital gains, and comprehensive real estate tax will also be granted the 1 household 1 dwelling exception. For both non-homeowners and individuals with one home purchasing dwellings in a population decline area, the acquisition tax will be reduced by up to 50%.
If unsold apartments in the provinces are rented out for more than two years, the original acquisition tax for housing construction businesses will also be reduced by up to 50%. The target for the comprehensive real estate tax 1 household 1 dwelling exception for low-priced dwellings in the provinces will change the public notice price limit from 300 million won to 400 million won, and the criteria for excluding additional acquisition tax on low-priced dwellings will be eased from a public notice price of 100 million won to 200 million won, limited to provincial dwellings.
The real estate development industry sees this policy as helpful in attracting the investment demand that is waiting in the local real estate market. In particular, the implementing companies assessed that if property tax on unsold dwellings after completion is paid in aggregate and then paid individually, the tax burden will be significantly reduced.
The representative of Company A, which is promoting development projects in the provinces, said, “It has been quite substantial for property taxes to be heavily taxed when there are many unsold dwellings held by implementing companies, but luckily this measure will significantly reduce the property tax burden,” adding, “There are many asset holders in the provinces, and this may increase the likelihood that they can buy apartments with good location or marketability seeing the 1 household 1 dwelling exception.”
An executive from Company B stated, “This policy helps the struggling local apartment sale market suffering from a real estate slump,” noting, “Unsold dwellings after completion are malignant unsold properties that have already been built but not sold, and granting tax benefits could relieve the financial burden that has been suffocating implementing companies.”
Implementing companies reported that the real estate market has been rapidly declining since the second half of 2022, particularly in the provinces, and development projects are at a standstill. They explained that project financing (PF) market shrinkage and rising construction costs have worsened the development environment, making the last three years quite challenging.
In reality, the number of unsold dwellings after completion in the provinces has been trending upward, exceeding 10,000 units. Unsold dwellings after completion in the provinces decreased from 10,761 units at the end of December 2020 to 6,848 units in 2021 and 6,226 units in 2022, but increased again to 8,690 units in 2023. Subsequently, it reached 14,464 units in October last year, and in November, just a month later, it rose to 14,802 units, an increase of 2.3% (338 units) from October.
The chairman of Company C, which holds development project sites in the provinces, explained, “To promote new development projects, unsold dwellings after completion need to find owners, but the resolution of unsold dwellings after completion in the provinces is not happening,” adding, “Only when unsold inventory has been cleared in the provinces can the doors open for PF loans for other new projects.”
There have also been requests to provide tax benefits not only for unsold dwellings after completion but also for general unsold dwellings in the provinces.
The representative of Company D stated, “There are quite a few unsold dwellings coming out in the capital region, which has better conditions than the provinces, and in newly constructed complexes, minus premiums sometimes apply,” adding, “Limiting the focus to unsold dwellings after completion in the provinces has limitations in rapidly improving the market atmosphere.”