Ahead of the government's late-July tax reform announcement, real estate experts said reform should lower transaction taxes to increase dwelling transactions. They said cutting acquisition tax and capital gains tax burdens is needed to bring listings to market. Opinions diverged on property holding taxes, but many warned that raising only holding taxes without cutting transaction taxes could pass the tax burden on to tenants and fuel instability in the jeonse and monthly rental markets.
On the 6th, ChosunBiz asked 10 real estate experts about the direction of tax reform, and 7 out of 10 said transaction taxes should be lowered. The idea is to spur dwelling sales by lowering taxes levied at the transaction stage, such as acquisition tax and capital gains tax. Many said the "listing lock-in," where people cannot sell because of tax burdens, should be eased. The remaining three said transaction taxes should be kept at current levels.
◇ "Lower transaction taxes to draw out listings"… Raising only holding taxes risks rental instability
Experts said the acquisition tax and capital gains tax systems need to be adjusted. Seven out of 10 responded that the acquisition tax system, which is steeply progressive depending on the number of dwellings owned and whether the area is regulated, should be abolished or partially eased. On heavier capital gains taxes for multiple-home owners, eight out of 10 said a complete repeal or an extension of the temporary suspension is needed.
Many also projected that lowering transaction taxes would increase dwelling transactions. Nine out of 10 experts said cutting transaction taxes could lead to more transactions. Nam Hyuk-woo of the Woori Bank Real Estate Research Institute said, "Tax reform should focus not on being a control that suppresses market prices, but on serving as lubricant to help dwellings be supplied and transacted smoothly to those who need them."
Opinions were split on holding taxes. Four respondents said holding taxes should be strengthened, and four said they should be eased. Two said current levels should be maintained.
However, opinions favoring abolition or easing were stronger regarding the comprehensive real estate tax, a national tax among holding taxes. Six out of 10 respondents said the comprehensive real estate tax should be abolished or integrated with the property tax. One favored easing, two supported keeping the status quo. One respondent said the comprehensive real estate tax should be raised. That respondent explained that, in the long run, it is necessary to increase the tax burden on high-priced dwellings while reducing tax resistance.
Experts said raising only holding taxes without cutting transaction taxes would have limited effects on stabilizing home prices. Six out of 10 respondents said strengthening holding taxes is unlikely to significantly stabilize prices. In the short term, some high-priced dwellings may come on the market, but the increased tax burden could be passed on to tenants, adding upward pressure to the jeonse and monthly rental markets.
Lee Eun-hyeong, a research fellow at the Korea Research Institute for Construction Policy, said, "If both holding and transaction taxes are raised, it will be hard to expect activated transactions or stability in the jeonse and monthly rental markets."
◇ Taxation of multiple-home owners and registered rental businesses should align with "activating transactions"
Experts said the tax regimes for multiple-home owners, registered rental business operators, and nonresidents with one dwelling should be overhauled with both transaction activation and rental market stability in mind. In May, the government ended the temporary suspension of heavier capital gains taxes for multiple-home owners and is reviewing tax reforms for registered rental business operators and nonresidents with one dwelling.
On taxes for multiple-home owners, many said the suspension of heavier capital gains taxes should be extended or completely abolished. Five out of 10 respondents called for complete abolition, and three advocated a temporary extension. Some said capital gains taxes should differ by housing type—apartment versus non-apartment—and by region, such as the greater Seoul area versus provinces.
There was significant opposition to reducing tax benefits for registered rental business operators. The concern is that if tax burdens rise, landlords may pass them on to tenants or the supply of rental dwellings could decline.
Ko Jun-seok, a professor at Yonsei University's Sangnam Institute of Management, said, "Because tax-regulatory policies can shift the burden to tenants, easing taxes to bring multiple-home owners' listings to market instead can help stabilize home prices." Kim Deok-rye, head of the housing research office at the Korea Housing Institute, said, "Tightening taxes on multiple-home owners is bound to affect jeonse and monthly rental households, so the rental market must be considered."
Song In-ho, head of the economic education and information center at the Korea Development Institute (KDI), said, "The government should focus on rental policy, particularly on stabilizing the jeonse market," emphasizing, "It is actually time to promote registration of rentals by multiple-home owners."
A majority said the current system should be maintained for nonresidents with one dwelling. One said benefits should be reduced compared with residents with one dwelling, and one said taxes should vary depending on the reason for nonresidency.
Opinions were split on the tax burden for owners of a single high-priced dwelling. Half said the burden should be eased or kept at current levels. Four said the burden should be increased but with exceptions for seniors and long-term holders.
◇ "Taxes alone can't tame home prices"… Supply and financial measures must accompany
Experts said tax reform alone is unlikely to stabilize the real estate market. If higher taxes are seen only as a demand-suppression tool, transactions may fall and prices may rise as a side effect. Many said tax reform should be accompanied by measures on dwelling supply, finance, and rentals.
Woo Byung-tak, a senior expert at Shinhan Premier Pathfinder, said, "Supply, financial, and rental policies need to be fine-tuned simultaneously," adding, "Financial policy is needed for short-term market stabilization, and supply must accompany it for long-term effects."
Song said, "The impact of taxes on real estate market stability is very limited," adding, "Interest rates, financial flows, and supply matter for the real estate market. Financial regulations can directly affect the market when they coincide with periods of rising interest rates."
※The 10 experts ▲Ko Jun-seok, professor at Yonsei University's Sangnam Institute of Management ▲Kim Deok-rye, head of the housing research office at the Korea Housing Institute ▲Nam Hyuk-woo, Woori Bank Real Estate Research Institute ▲Park Won-gap, chief real estate expert at KB Kookmin Bank ▲Seo Jin-hyeong, professor at Kwangwoon University's Department of Real Estate Law ▲Song Seung-hyun, CEO of Urban and Economy ▲Song In-ho, head of the economic education and information center at the Korea Development Institute (KDI) ▲Woo Byung-tak, senior expert at Shinhan Premier Pathfinder ▲Yoo Seon-jong, professor at Konkuk University's Department of Real Estate ▲Lee Eun-hyeong, research fellow at the Korea Research Institute for Construction Policy (listed in Korean alphabetical order)