After the Oct. 15 housing market stabilization measures, remarks about "strengthening holding taxes" from the government and the ruling party have drawn intense market attention. As public backlash grew over tough loan limits and expanded regulated zones, the idea has been mentioned as a follow-up to rein in housing prices. A remark about a "1% holding tax" by Koo Yun-cheol, Deputy Prime Minister for Economic Affairs and Minister of the Ministry of Economy and Finance, lit the fuse.
The market believes that if a high holding tax at around 1% is imposed, retired seniors who have held high-priced homes long term will be hit first. There is a possibility that housing prices could temporarily fall as homeowners who cannot bear the holding tax put urgent listings on the market.
However, with the bar for loans now much higher, there are concerns that these listings will be snapped up by cash-rich or high-income buyers, further fortifying the entry barrier to key areas of Seoul. Some also say that rents could rise due to tax pass-through to tenants, or that the shift to monthly rents could accelerate. Experts advise that cuts to transaction taxes such as capital gains and acquisition taxes, along with supply measures centered on key areas, must accompany the policy.
◆Koo Yun-cheol's "1% holding tax" remark lights the fuse… A look at U.S. holding taxes
According to the real estate industry and political circles on the 23rd, Jin Sung-joon, a lawmaker of the Democratic Party of Korea, said on CBS Radio's "Kim Hyun-jung's News Show" the previous day that "a hike in holding taxes should have been included in the government's measures." He added, "Because apartment prices threaten the housing of working-class and middle-class residents in Seoul, we need to approach the issue with a bit more courage." His comments came right after his party's leadership issued an official position that it would not discuss raising holding taxes in light of next year's local elections.
The person who ignited the debate over raising holding taxes was Koo Yun-cheol, Deputy Prime Minister for Economic Affairs and Minister of the Ministry of Economy and Finance. Koo, at a press briefing held in Washington, D.C., on the 19th, said that "in the United States, the holding tax on dwellings is 1%." The Ministry of Economy and Finance (MOEF) quickly clarified, saying, "This is not at all the (official) position of the Deputy Prime Minister," but public opinion had already begun to boil. Kim Yong-beom, Presidential Chief of Staff for Policy, also appeared on Sampro TV on the day of the Oct. 15 measures and said, "It is clearly true that holding taxes are low."
Citing the United States, Koo said in making the "1% holding tax" remark: "If, like the United States, you levy property tax at 1%, then on a 5 billion won home you would pay 50 million won a year. If it becomes too burdensome to hold an expensive home, people will sell, and that will create liquidity in the real estate market."
The figures Koo cited appear to be U.S. averages. In the United States, holding taxes vary by state and county. In Houston, Texas, it is 2.5%; in Chicago, 1.38%; and in Miami, 1.02%, which are high levels, while Hawaii is low at around 0.3%. Because most state government finances depend on property tax, holding taxes are generally high. In Hawaii's case, strong tourism revenues are said to keep property taxes from being high. In some counties with a high proportion of seniors, education-related taxes are not collected.
There are also points Koo did not mention. In the United States, if a couple jointly owns a home and has lived in it for a total of two years, capital gains of up to $500,000 (about 715 million won) are exempt. Most Americans take out a loan when buying dwellings, and if the loan amount is $750,000 (about 1.073 billion won) or less, interest payments are reflected in income tax and deducted. Property taxes paid to the government can also be deducted. The average loan-to-value (LTV) ratio in the United States is 80%.
Lim Chae-uk, CEO of GH Partners, said, "While holding taxes are generally high in the United States, they are very finely segmented by state and by city and county," adding, "There are capital gains exemptions and tax benefits, and property taxes are reflected in income tax and deducted, so the U.S. tax system related to real estate needs careful scrutiny."
◆"High-income and cash-rich owners will hold on"… Possibility of temporary price drops
The market believes that if a "1% holding tax" becomes reality, "retired seniors living in high-priced dwellings" will be the first to be hit. Most long-term residents in key Seoul areas such as the three Gangnam districts rely on public and private pensions for living expenses, and without other income it could become difficult to shoulder holding taxes. People in their 30s and 40s who bought homes in key areas with so-called "all-in" loans could also be hit.
However, whether all of them will put properties on the market is a separate question. If they have already met the two-year owner-occupation requirement in land transaction permit zones, they may move out by finding a jeonse tenant, or, rather than sell, may gift the home to their children. Given abundant market liquidity and a lack of supply, and the firm belief in the "upward trajectory of Seoul home prices," listings may not come out to the extent the government expects.
In the past, holding taxes were raised to induce price declines, but a side effect was that buying power concentrated on a "smart single home." The Moon Jae-in administration raised the posted-price reflection ratio, which is the basis for calculating holding taxes, to 90%. It also raised the comprehensive real estate tax rate for owners of multiple homes to as high as 6.0%.
Some worry that it could fuel rising jeonse prices or accelerate the shift to monthly rents. As taxes rise, landlords could reflect that in jeonse prices by raising deposits. And landlords with insufficient income could switch to monthly rents, ultimately increasing the burden on tenants without homes.
Park Hap-su, an adjunct professor at Konkuk University's Graduate School of Real Estate, said, "Because related laws were amended in 2023, it is appropriate to maintain the current system in consideration of tax stability," adding, "Even for single-home owners, resistance to taxes is strong, so a hike should be considered only after substantial consensus is formed through commissioned studies and public hearings."
Cho Young-gwang, a researcher at Daewoo E&C, said, "I do not think that simply raising holding taxes will induce homeowners of high-priced dwellings to sell," adding, "Based on past governments, people have learned that if they hold out until the administration changes, they will be fine, and that perception is solid."
◆Could build a "solid wall"… "Cuts to transaction taxes and supply measures must accompany it"
What the market fears most is that a "holding tax hike" could raise entry barriers to major areas of Seoul, including the three Gangnam districts. If a retired person who has held a high-priced home for a long time tries to sell now, we need to ask who will buy it. With LTV limited to 40% in regulated zones and the cap on mortgage loans for dwellings over 2.5 billion won at 200 million won, asset-rich buyers with cash on hand are more likely to purchase these homes.
Affluent individuals can bear higher holding taxes. According to last year's "Korea Wealth Report" released by KB Kookmin Bank, 461,000 people nationwide hold at least 1 billion won in financial assets, and 208,800 of them live in Seoul. Looking at their asset allocation, real estate accounts for 55.4%, the largest share, and financial assets are also substantial at 38.9%.
Residents of key areas also tend to have high income levels. According to data released by the National Tax Service last year, among 229 cities, counties, and districts nationwide, the area with the highest average per capita comprehensive income was Yongsan District in Seoul at 130 million won, followed by Gangnam District at 117 million won and Seocho District at 109 million won.
In some wealthy U.S. neighborhoods, high property taxes are deliberately used as an "entry barrier." In the United States, "exclusionary zoning," which restricts development that could attract other income groups under the logic of property taxes and local finances, has been a persistent source of debate. According to the Lincoln Institute of Land Policy, as the interests of local governments seeking to expand their fiscal base through property taxes align with residents who dislike the influx of other income groups into their residence, there are many cases of maintaining high property taxes. To exclude affordable housing for low-income residents, they maintain a property tax base focused on high-priced single-family homes.
Lim said, "In some wealthy American neighborhoods, residents even ask for higher taxes," adding, "They want to raise the 'entry barrier' so that not just anyone can move into our neighborhood."
If a hike in holding taxes is necessary, many also argue that transaction taxes such as capital gains and acquisition taxes should be lowered to reduce the burden of transactions in the market. Swift supply measures must also accompany the policy to break the longstanding belief that "Seoul home prices move upward."
Yoo Sun-jong, a professor in the Department of Real Estate at Konkuk University, said, "Even if holding taxes are raised, cash-rich owners and those who bought without debt will try to hold on," adding, "Based on past experience, people strongly believe that in 10 to 20 years policies will change at some point and home prices will trend upward."
Some also advise that we need to consider the ultimate goal of housing policy. The goal of housing policy is not to push down prices through excessive regulation and taxation. For example, retired seniors who can no longer bear holding taxes and must leave homes they have lived in for decades also have the "freedom of residence." The goal of the Ministry of Land, Infrastructure and Transport's housing policy is to realize "housing welfare," enabling all citizens to live stably in quality dwellings at reasonable prices.
Oh Ji-yoon, a professor of economics at Myongji University, said, "If holding taxes are imposed very strongly, there could be a temporary effect of falling dwelling prices across Seoul. But over time, there is a high possibility of side effects where homes convert to jeonse or monthly rents," adding, "The government needs to recall the purpose of housing policy."
Meanwhile, for owners of multiple homes, the comprehensive real estate tax rate (jongbuse rate) already far exceeds 1%, reaching as high as 5%. The comprehensive real estate tax rate, which is tiered by dwelling price, is set at 0.5-2.7% for up to two homes and 0.5-5% for three or more homes.