The government will revise the real estate tax system to raise holding taxes on ultra-high-priced dwellings and dwellings bought for speculation. It will lower the tax burden on owner-occupied dwellings, dwellings for low- and middle-income households, and provincial dwellings, while imposing higher taxes on the so-called "smart single home" strategy of concentrating an asset in one expensive dwelling. However, specific details such as the threshold and tax rates for ultra-high-priced dwellings have not yet been decided.
The government believes the current system, which varies the tax burden by the number of dwellings, encouraged the smart single home preference. Asset holders seeking to avoid multi-homeowner regulations concentrated an asset in a single expensive apartment in favored areas such as Gangnam in Seoul and the Han River corridor, deepening the regional polarization of home prices.
Experts said raising holding taxes on ultra-high-priced dwellings alone would not easily curb the tilt toward top-tier areas. Unless shortages in dwelling supply and regional gaps in jobs, education, and transportation infrastructure are resolved, demand for high-priced dwellings will not easily decline. On the other hand, some said that if the comprehensive real estate tax is reshaped to focus on the combined value of owned real estate rather than the number of dwellings, the market could gain more options.
◇ "First fix supply shortages and regional polarization"
Lee Jae-myung, the president, said at the "National debate on real estate policy" held at the KBS annex in Yeouido, Seoul, on the 23rd that "the smart single home has caused serious problems in Korea," adding that "it created opportunities to speculate efficiently."
The president said, "Policymakers intended to respect and protect one household, one dwelling," but added, "By treating homes the same whether expensive or cheap, we saw people buy one dwelling and enjoy investment gains." The point was that granting tax benefits solely for being a one-dwelling owner without distinguishing between owner-occupied use and investment or speculative use was the problem.
The government sought to stabilize home prices by curbing multiple ownership, but concludes that, in effect, asset holders concentrated an asset in a single expensive apartment to avoid the tax burden. As a result, demand poured into favored areas such as the three Gangnam districts and the Han River corridor, causing top-tier area prices to rise faster.
However, experts said it is uncertain whether the preference for a smart single home will clearly weaken even if the tax burden on single owners of ultra-high-priced dwellings increases.
Kim Hyo-seon, chief real estate expert at KB Kookmin Bank, said, "The smart single home preference stems more fundamentally from supply shortages, supply-demand imbalances, and regional polarization," adding, "Strengthening holding taxes on ultra-high-priced dwellings will likely not resolve this phenomenon."
Kim In-man, head of the Kim In-man Real Estate Economy Research Institute, said, "Even if people buy an additional home and rent it out at a low rent, it is hard to get tax benefits, so asset holders have less reason to own multiple homes," adding, "As long as multi-homeowner regulations remain, the preference for a smart single home will continue for a considerable period."
◇ "High-priced dwellings have become status goods; demand holds even with higher taxes"
Some also analyze that, because high-priced dwellings have become "status goods" that signal wealth and social standing beyond mere living space, raising holding taxes alone will not easily suppress demand. Status goods are goods whose ownership itself, more than the product's original function, signals social status and economic power. Because they are highly scarce, demand does not easily fall even when prices rise.
A real estate expert who requested anonymity said, "When the home one lives in has become a good that signifies wealth and prestige, demand for high-priced dwellings may not fall much even if the tax burden is raised," adding, "To ease the tilt toward top-tier areas, fundamental measures such as balanced regional development and improvements in transportation and education conditions are needed."
There is also a view that the market could change if the comprehensive real estate tax is redesigned to focus on the total value of owned dwellings rather than the number of dwellings.
Currently, the comprehensive real estate tax rate on individual dwelling holdings is 0.5%–2.7% for up to two dwellings and 0.5%–5.0% for three or more dwellings. However, even for three or more dwellings, the same rates as for up to two dwellings apply in the taxable base bracket of up to 1.2 billion won. The basic deduction is 1.2 billion won for a single household with one dwelling in a sole name, and 900 million won for other individuals. For a married couple jointly owning one dwelling, each can deduct 900 million won, for a total of 1.8 billion won.
Nam Hyuk-woo at Woori Bank Real Estate Research Institute said, "If we narrow the differences in tax rates and deductions by the number of dwellings and tax based on the combined value of owned dwellings, what matters becomes the total real estate asset rather than how many homes one has," adding, "Asset holders would have room to choose several mid-priced dwellings instead of insisting on a single ultra-high-priced dwelling, allowing the market to be reshaped."