The Blue House has been calling in real estate experts in succession to hear opinions on plans to reform real estate taxation and stabilize the lease market, it has been confirmed. Weight is being given to the view that the tax reform plan, set to be announced at the end of Jul., is likely to include measures to strengthen holding taxes (comprehensive real estate tax·property tax), including capital gains tax, which has sparked controversy over the abolition of the special long-term holding deduction.
According to the real estate industry on the 21st, the Blue House, led by the land and transport secretary, is calling in real estate experts to hear opinions on plans to stabilize the real estate market. An industry official said, "Some experts went directly to the Blue House, and the Ministry of Land, Infrastructure and Transport is also frequently communicating with experts for Blue House briefings," adding, "We discussed the current market situation and market outlook under the policies." The official added, "We delivered opinions on the market impact of real estate and tax policies, and in particular discussed the outlook for the jeonsei and monthly rent markets as listings from multiple-home owners increase."
The Blue House is said to be closely reviewing the possibility of tax reform while maintaining the stance that raising holding taxes is "a last resort." Hong Ik-pyo, Blue House senior secretary for political affairs, said in a recent media interview, "If, after the aggravated (capital gains) taxation on multiple homes began on May 9, listings freeze up or real estate prices rise centered on 'one smart home,' the government will use every tool it has," adding, "Holding taxes are one of the tools that can be reviewed in that process." In the industry, abolishing the fair market value ratio for the comprehensive real estate tax and adding an actual-residence requirement to the special long-term holding deduction are seen as strong possibilities.
Abolishing the special long-term holding deduction for capital gains tax is also being mentioned. President Lee Jae-myung wrote on his X account on the 18th, "The special long-term holding deduction for capital gains tax is a system that, 'regardless of residence,' grants a steep reduction in capital gains tax solely on the grounds of long-term holding," adding, "If earned income, the reward for diligent work over a year, exceeds 1 billion won, almost half is paid in taxes, but it violates justice and common sense to drastically cut taxes on unearned real estate speculative gains of tens or hundreds of billions of won just because they were held for a long time (regardless of residence)."
Under the current Income Tax Act, the special long-term holding deduction for one-home owners is applied by adding together the holding period and the residence period. For example, if a one-home owner holds for 10 years or more and resides for 10 years or more, they can receive up to an 80% special long-term holding deduction at 40% each. When the special long-term holding deduction applies, the tax base (the basis on which taxes are imposed) is reduced by that percentage. Within the Blue House, they are said to be considering, without excluding, options that alter the tax base itself, such as subdividing and adjusting the brackets. An industry official said, "We determined there is a possibility that both holding and capital gains taxes will be reformed with stronger intensity than the market expects," adding, "The tax burden on owners of high-priced dwellings in Seoul is expected to grow."
However, it is still difficult to say definitively whether tax reform will proceed as the government intends. The Democratic Party is keeping its distance from the Blue House with voters in mind. That is because real estate tax issues could upend the electoral landscape in Seoul and the greater metropolitan area in the June 3 local elections now just over 40 days away. Kang Jun-hyun, the Democratic Party's chief spokesperson, drew a line when he met reporters the previous day regarding the president's mention of abolishing the special long-term holding deduction for capital gains tax, saying, "The Democratic Party has not reviewed anything at all regarding tax reform." A National Assembly official said, "Although the Blue House's will to normalize real estate is strong, tax resistance due to increased burdens cannot be ignored," adding, "Opposition within the ruling party is not insignificant."
The Blue House is also said to be seeking measures to resolve instability in the lease market. As key areas of Seoul and Gyeonggi are designated as land transaction permit zones, jeonsei and monthly rent listings are decreasing while prices are soaring. According to big data platform Asil for real estate, as of the 18th, there were 15,427 Seoul apartment jeonsei listings, a 49.9% plunge from 30,750 on Apr. 18, 2024, two years earlier. According to the Korea Real Estate Board (REB)'s housing price trend survey, the average jeonsei price for Seoul apartments in Mar. was 601.49 million won. It is the first time in 3 years and 5 months since Oct. 2022 (616.94 million won) that the average jeonsei price for Seoul apartments has exceeded 600 million won.