President Lee Jae-myung has ruled out any deferral of the heavier capital gains tax on multiple-home owners and is turning up the pressure by signaling even a strengthening of property holding taxes (comprehensive real estate tax and property tax). In the market, some say the government may move immediately to overhaul holding taxes after the June 3 local elections, calling it a "déjà vu of the Moon Jae-in administration."
On the night of the 25th, the president shared on social media platform X (formerly Twitter) an article saying the tougher capital gains tax policy could have only a "flash-in-the-pan effect," writing, "Could people really do that even if the tax for holding out is more expensive than the tax paid when selling?" Aimed at the sentiment in parts of the market that it may be better to keep holding a home if capital gains tax burdens grow, the post appears to hint at stronger holding taxes.
Some view the remarks as a "scare tactic" to push multiple-home owners to list properties, but sentiment in the market is tilting toward the view that the government will move to revamp holding taxes right after the local elections. The tax revision bill for next year is announced every July, and it is seen as highly likely to include a real estate tax overhaul. If it passes the final plenary session in December after submission to and deliberation in the National Assembly, the revised tax plan would take effect from next year.
Previously, the Moon administration revived the system of heavier capital gains taxes on multiple-home owners through the Aug. 2, 2017 real estate measures. But when multiple-home owners refused to sell and instead held on or gifted properties to their children, keeping listings off the market, the administration also pulled out the card of raising holding taxes. It gradually increased comprehensive real estate tax rates and split the taxable base brackets to adjust the tax code so that the burden would grow for multiple-home owners and owners of high-priced dwellings. Seo Jin-hyung, a professor at Kwangwoon University's Graduate School of Real Estate Law and Administration, said, "This time as well, the government appears likely to toughen capital gains taxes and move to overhaul holding taxes after the local elections."
The market expects the government to first push to raise the fair market value ratio (fairness ratio), which can be done by revising an enforcement decree. The fairness ratio determines the taxable base (the basis on which taxes are levied) and is currently 60%. From its introduction in 2008 until 2018, it was fixed at 80% of the officially assessed price, but the Moon Jae-in administration, saying it would rein in home prices, raised the ratio to 85% in 2019, 90% in 2020 and 95% in 2021, after which the Yoon Suk-yeol administration lowered it to 60%.
If the fairness ratio rises, comprehensive real estate tax increases. For example, if a single-household, single-home owner holds a dwelling with an officially assessed price of 1.7 billion won, the taxable base is now 300 million won with the 60% fairness ratio, but would increase to 400 million won if the ratio is raised to 80%. A 0.5% rate applies to 300 million won or less, and 0.7% to more than 300 million won up to 600 million won; in this case, the tax would rise about 87%, from 1.5 million won to 2.8 million won.
Park Hap-soo, an adjunct professor at Konkuk University's Graduate School of Real Estate, said, "If holding taxes are to be revamped, raising the comprehensive real estate tax fairness ratio from 60% to around 80% seems suitable under current conditions," adding, "Because holding taxes are on the higher side compared with other countries, raising them further would face considerable tax resistance." In 2023, Korea's property holding tax rate as a share of gross domestic product (GDP) was 1%, above the OECD average of 0.91%. Holding taxes also accounted for 3.5% of total taxes, higher than the average of 2.7%.
Another holding tax tightening measure under review is lowering the basic deduction amount for the comprehensive real estate tax. In 2023, the basic deduction was raised from 600 million won to 900 million won for multiple-home owners, and from 1.1 billion won to 1.2 billion won for single-household, single-home owners. The government could also raise comprehensive real estate tax rates. In 2021, the Moon administration increased the rates for those with up to two homes from "0.5%–2.7%" to "0.6%–3.0%," and for those with three or more homes (including two homes in regulated areas) from "0.6%–3.2%" to "1.2%–6.0%."
However, some say directly changing the rates would carry significant political burdens. A political figure said, "It appears practically difficult to include a plan to raise comprehensive real estate tax rates in the July tax revision bill this year," adding, "Tax burdens would rise as early as next year, which could have a significantly negative impact on the 2028 general election, so there is strong opposition even within the ruling party." The person added, "The government is more likely to use indirect measures rather than directly adjusting rates."