One of the core messages of the government's tax reform plan for next year is not just to own a home but to live in it. It also made clear it will collect more taxes than now from people who only own homes without living in them. The government referred to this as "tax rationalization" and "normalization of the tax burden." The remark, "A house is not for 'buying,' but for 'living'" ( Koo Yun-cheol, vice prime minister), encapsulates this view.
However, concerns are growing that a policy that proclaims good intentions like this could seriously disrupt the real estate market. Many experts worry that even if the government imposes higher taxes on nonresident single-home owners and multiple-home owners on the belief that nonresidents fueled real estate speculation, the market will not stabilize; instead, a disappearance of rental listings will worsen tenants' hardship. There is also criticism that, with high acquisition and capital gains taxes, it is unrealistic to buy a home in every area where actual residence is needed.
◇ "The tax reform plan's policy goal is only to raise taxes"
Regarding the tax reform plan, the point most frequently raised among experts is that the policy goal is unclear. It is impossible to know whether the aim of the tax code amendment is to force nonresident single-home owners and multiple-home owners to sell their homes or to live in the homes they own, or whether it simply intends to collect more going forward because, until now, they paid less tax than the government thought they should. Seo Jin-hyung, a professor in the real estate law and administration department at Kwangwoon University, said, "In the end, the only way to see the amendment is that its purpose is a tax hike."
There is also significant criticism that a shift to a system centered on actual residence is unrealistic. People who must relocate for school, job changes, or temporary assignments cannot afford the acquisition and capital gains taxes that accompany each transaction if they have to buy a home every time they move to where they will actually live. Currently, for dwellings priced over 900 million won, the acquisition tax rate, including local education tax and The Special Tax for Rural Development, is 3.3% for exclusive areas of 85㎡ or less and 3.5% for exclusive areas over 85㎡. Capital gains tax is levied separately.
Tax accountant Jeong Won-jun at Hanwha Life Insurance Financial Services said, "What is commonly called a lateral move to a similarly priced home in another area is not feasible for someone who owns one home if they must pay both capital gains and acquisition taxes." It is effectively impossible to "buy" and "live" every time in the place where actual residence is required.
A person surnamed Lee (51) who lives in Seongdong District said, "Are you telling us to buy a home and pay acquisition and capital gains taxes every time we change jobs or are dispatched?" adding, "Policies dreamed up at desks, talking about buying and living without understanding reality, will lead to harm to citizens."
◇ A worsening rental crunch that is as plain as day
The market is on high alert over the negative impact the tax reform plan will have on the rental market. If nonresident single-home owners switch to actual residence or sell their dwellings, the rental crunch will worsen. Under the government's heavy taxation policy, if nonresident owners move into the homes they are renting out or sell the homes to residents, existing tenants must find other dwellings. That reduces rental supply and increases rental demand.
This situation is expected to accelerate especially because the government designated all of Seoul and parts of Gyeonggi Province as land transaction permit zones. Even if a landlord sells a nonresident dwelling, it will not be supplied as a rental unit, and the buyer must use it for actual residence.
Nam Hyuk-woo at Woori Bank Real Estate Research Institute said, "If the reorganization of the market around actual residence is strengthened, the decline in rental turnover volume is expected to continue," adding, "Owners of high-priced nonresident dwellings with relatively short holding periods may choose 'returning home' to their original homes to reduce taxes." He went on, "When a nonresident switches to actual residence, existing rental listings become for owner-occupation, and the displaced rental demand flows back into the market," adding, "There is a possibility that volatility in rental prices will increase."
Kim Hyo-sun, senior real estate specialist at KB Kookmin Bank, also said, "The increased burden of property holding taxes could be passed on to tenants," adding, "If the burden of high jeonse grows, monthly rental contracts will expand, and the jeonse market could shift toward monthly rents with rising prices, so additional measures to stabilize rentals, such as expanding supply of non-apartment housing and easing related regulations, are needed."
◇ Even if you leave home for work or caregiving, tax burden rises after 3 years… reluctance to go to the provinces
There are also concerns that stronger taxation of nonresidents could not only unsettle the rental market but also discourage assignments to the provinces or overseas. Some point out that more provincial employees may live apart from their families to maintain the actual-residence benefits of a Seoul-area dwelling rather than relocating the entire family.
The government decided that, after residing in a dwelling for a certain period, if a person lives in another area for reasons such as schooling, transfer, long-term treatment, overseas assignment, or caring for parents, part of the nonresident period will be recognized as residence for up to three years. However, after three years, they are again classified as nonresidents and their tax burden may increase.
Ko Joon-seok, a professor at Yonsei University Sangnam Institute of Management, said, "If excessive taxes are imposed on people who plan to return after a few years while keeping their Seoul home, complaints about provincial assignments could grow." Seo Jin-hyung, a professor in the real estate law and administration department at Kwangwoon University, said, "Some live as nonresidents not for speculation but because of jobs or studies," adding, "Since the setting of exceptions could create unintended victims, a finely tuned system design is necessary."