Since the Oct. 15 housing market stabilization plan, as government officials one after another mention "raising holding taxes" as a follow-up regulation, the market's attention is focusing. Experts well versed in the real estate market and the tax system said in unison that it would be difficult to curb rising home prices by raising only holding taxes such as the property tax and the comprehensive real estate tax (comprehensive real estate tax). Many said it is a priority to lower transaction taxes such as the capital gains tax and acquisition tax to induce listings onto the market.
According to a survey by ChosunBiz on the 5th of 10 real estate and tax experts, all 10 responded that it is difficult to stabilize home prices by raising only holding taxes. They worried that it could instead lead to rent being passed on to tenants, resulting in higher home prices.
Eight experts said the current property tax and comprehensive real estate tax should be integrated. Also, half mentioned next year as the timing for raising holding taxes. Opinions were divided on the need to raise holding taxes. However, a majority agreed that the basis for calculating holding taxes should be changed from the number of dwellings to the "dwelling value."
◆ Possibility of "holding tax hike → rent increase → home price rise"… "Getting listings out first"
All 10 experts said it would be hard to see a stabilizing effect on home prices by raising only holding taxes. As the Ministry of Economy and Finance said this month it will launch a research project to overhaul the real estate tax system, market interest in a "holding tax increase" is growing.
Experts said a learning effect could kick in, given that the holding tax hikes carried out under the Moon Jae-in administration in the past led to higher home prices. Through the July 10, 2020 measures, the maximum punitive rate on the comprehensive real estate tax for multi-home owners was raised to 6.0%, and the acquisition tax rate to as high as 12%, but the very next month, the number of apartment sale transactions in Seoul fell 57%, leading to a listings freeze. At that time, the publicly announced value was also raised to about 90% of market prices.
Cho Young-gwang, a researcher at Daewoo E&C, said, "In a situation where expectations for rising home prices are maintained, multi-home owners will also hunker down," adding, "Along with worsening public sentiment, there will be an increase in price rises and gifts."
Park Hun, a professor in the Department of Taxation at the University of Seoul, said, "It is difficult to adjust home prices with holding taxes alone," adding, "Even if supplying dwellings takes 10 to 20 years, it can have a psychological effect, so we should think differently about priorities."
Experts worried about several side effects that could occur if only holding taxes are raised. In the short term, listings may come out mainly among high-priced dwellings, but as jeonse deposits and monthly rents rise in line with higher holding taxes, "tax pass-through" to tenants could occur. In the end, tenants, the weaker side in the dwelling market, could end up shouldering the weight of higher holding taxes.
Kim Deok-rye, head of the Housing Research Office at the Korea Housing Institute, said, "The tax increase resulting from stronger holding taxes can be recognized as an expense from the homeowner's perspective, so it is passed on to the tenant," adding, "Excessive holding burdens make living in one's own dwelling difficult and can instead cause housing instability."
Park Hap-su, an adjunct professor at Konkuk University Graduate School of Real Estate, said, "When holding taxes go up, the first thing that happens is raising monthly rent to pass it on to tenants," adding, "In the end, it is reflected in sale prices."
Some experts also said that for a holding tax hike to be effective, the effective tax rate must be raised significantly to above 1%. Ma Gang-rae, a professor in the Department of Urban Planning and Real Estate at Chung-Ang University, said, "It will be realistically difficult to sharply raise holding taxes because of the heavy political burden," adding, "A holding tax increase at an achievable level will not help stabilize home prices."
Experts said that before raising holding taxes, transaction taxes such as acquisition and capital gains taxes should be lowered to induce listings to come onto the market. Currently, a temporary suspension of punitive capital gains taxes on multi-home owners is in effect through May next year, and many had a negative view of ending it. As strong lending regulations were announced in the Oct. 15 measures, they worried that the "listings freeze" could accelerate. In this situation, if only a holding tax hike is carried out without easing transaction taxes, the side effects will only grow, they said. Others also mentioned balanced regional development to disperse demand.
Yoon Ji-hae, a senior researcher at Real Estate R114, said, "Lowering the burden of acquisition and capital gains taxes and raising holding taxes will be necessary to build social consensus," adding, "The natural turnover of existing dwellings can be induced through taxes, so this should be pursued in parallel."
Ham Young-jin, head of the Real Estate Research Lab at Woori Bank, said, "We need to maintain a direction of raising holding taxes and lowering transaction taxes to mitigate the side effects of a listings freeze," adding, "Rather than tax policy, we should speed up supply expansion, and we also need to pursue balanced regional development policies to disperse demand to the provinces."
◆ Diverging views on whether to raise holding taxes… Half say the timing is "next year"
Experts were split on the fundamental question of "whether holding taxes should be raised." Most chose "they should be raised gradually" or "there is no need to raise them," with some saying "the sooner the better." The current comprehensive real estate tax was revised in 2023, abolishing the punitive tax for two-home owners and lowering the rates. The basic deduction was also raised from 600 million won to 900 million won, and for one-home owners, an additional 300 million won deduction allows a total deduction of up to 1.2 billion won.
Half of the experts agreed that even if holding taxes are raised, they should be raised gradually. They said lifting the publicly announced price realization rate to around 80% and then gradually increasing holding taxes through legal revisions would face less market resistance. The government has decided to keep next year's publicly announced price realization rate at 69%, the same as this year. The move is seen as considering the increased tax burden due to sharply rising home prices.
Woo Byung-tak, a senior specialist at Shinhan Premier Pathfinder, said, "Because the publicly announced price realization rate has been stagnant for the past two years, it needs to be raised gradually," adding, "However, if holding taxes are strengthened in a year when home prices have risen sharply, the policy effect will be limited and tax resistance will arise."
Deputy Minister Kim Deok-rye said, "The overhaul of the real estate tax system should be approached comprehensively and carefully from the perspective of transaction taxes such as acquisition and holding taxes, and after sufficient review, it should be pursued gradually at a level where the tax burden on dwellings does not increase significantly."
Three experts said raising holding taxes is not necessary at this point. Since holding tax rates were adjusted in 2023, changing them again in two to three years could cause market confusion, they said. There was also the view that holding taxes should not be mobilized as a tool to control home prices in the first place. They also advised that raising holding taxes should be decided carefully because it can sequentially push up home prices.
Adjunct Professor Park Hap-su said, "It is not desirable to overhaul taxes to which the market can react sensitively, like holding taxes, again after only a few years," adding, "It is appropriate to wrap up by raising the publicly announced price realization rate to 80%. Instead, sharply easing capital gains taxes will help stabilize home prices."
Professor Oh Ji-yoon said, "The real estate tax system should not be used merely as a tool to control home prices," adding, "In the case of property tax, because dwelling prices in Seoul have risen, taxes will go up even without rate adjustments. If you raise the property tax, monthly rent and jeonse will sequentially increase, so we need to think carefully about the effectiveness of the real estate policy goals."
The other two said a holding tax increase is necessary. One of them said a large increase in holding taxes is needed. However, this expert also shared the view that holding taxes should not be mobilized as a tool to control home prices.
Ma Gang-rae, a professor in the Department of Urban Planning and Real Estate at Chung-Ang University, said, "For a holding tax increase to help stabilize home prices, the effective tax rate must be raised to above 1%, but doing so would be very difficult due to the heavy political burden."
As discussion of a real estate tax overhaul emerges at the government level, seven experts pointed to next year as the timing for raising holding taxes. Of these, four expected the timing to be in the second half, after the local elections in June next year. They cited the heavy political burden of raising holding taxes before an election.
Researcher Cho Young-gwang said, "Although it was said that the tax overhaul study will be wrapped up by the end of this year, considering that there are local elections in June next year, I think it will become visible around the second half of next year."
◆ Seven experts say "integrate property and comprehensive real estate taxes"… Many say a "dwelling value" standard is appropriate
Experts said the current holding tax system, which is split between the property tax and the comprehensive real estate tax, should be integrated. Seven out of 10 strongly argued for this. In particular, for the comprehensive real estate tax, they said it has a punitive nature toward high-priced dwellings, so it should be abolished, and only the property tax, which is a local government tax, should be collected and used in line with the intent of the tax item.
The comprehensive real estate tax was created in 2005 under the Roh Moo-hyun administration. Until then, holding taxes on dwellings were levied only through the property tax, which is a local government tax, but the comprehensive real estate tax, which is a national tax, was added. The reason it was designated as a national tax at the time was to prevent the side effect of collecting a lot of taxes only in the relevant area, as those subject to the comprehensive real estate tax were concentrated in the three Gangnam districts.
Senior Specialist Woo Byung-tak said, "In the long term, I think it should be unified in the form of a property tax," adding, "The degree of the burden should be set higher than the current property tax but lower than the sum of the property tax and the comprehensive real estate tax, and then raised gradually."
Researcher Yoon Ji-hae said, "Consolidating and merging the holding tax structure can be viewed positively as a way to simplify and make the tax structure more efficient."
Currently, holding taxes are set based on the number of dwellings, but most experts said holding taxes should be applied by aggregating the dwelling value. They pointed out that by strengthening regulations on multiple dwellings, the phenomenon of "one smart, core home" has intensified, prompting demand concentration in certain areas. They said that a dwelling value standard is an appropriate measure to prevent market distortions.
Professor Park Hun said, "Punitive taxation on multi-home owners based on the number of dwellings causes many quite negative effects," adding, "It is underpinned by the stance of taking revenue from multi-home owners through taxes, which causes market distortions."