As the government decided to toughen holding taxes on ultra-expensive dwellings and more, wealthy people are turning their eyes to reconstruction and redevelopment move-in rights. That is because once an existing apartment is demolished, they can reduce their burden of the dwelling portion of the property tax and the comprehensive real estate tax until the new apartment is completed. Based on an apartment worth about 3 billion won, an estimate showed that holding taxes over two years differ by more than 22 million won depending on whether it is demolished.
On the 17th, ChosunBiz asked Park Dam, tax specialist on the inheritance and gift team at the Living Trust Consulting Department of Hana Bank, to run a simulation to examine the tax-saving effect of move-in rights after demolition. The assumption was a 65-year-old, nonresident single-household, single-home owner who had held an apartment worth about 3 billion won for 10 years. Post-demolition taxes were calculated by applying the land share and other factors of a 79.24-square-meter exclusive-use unit at Sibeom Apartment in Yeouido-dong, Yeongdeungpo District, Seoul, which had a transaction at 3.01 billion won last month.
If the apartment is not demolished and remains as dwellings, the estimate shows that in 2027 the owner would pay a total of 13.4 million won, including 7.68 million won in comprehensive real estate tax and 5.72 million won in property tax including the local education tax. The expected holding tax for 2028 is 17.6 million won, combining 11.88 million won in comprehensive real estate tax and 5.72 million won in property tax. The two-year holding tax totals 31 million won.
By contrast, if the apartment is demolished before June 1, the tax base date in 2027, leaving only the move-in right, local taxes such as the land portion of the property tax are estimated at 4.38 million won per year. That is 8.76 million won over two years, 22.24 million won less than when the building remains.
In Gangnam, there has been a rise in inquiries about move-in rights for apartments that have been demolished or are about to be torn down. A person surnamed Park, who gives tax-saving lectures for asset holders in areas such as Gangnam in Seoul, said consultations on investing in move-in rights have increased since the government unveiled its tax law revision bill early this month.
Park said, "Owners of high-priced dwellings, whose holding taxes are expected to rise sharply, are looking for ways to reduce their tax burden," adding, "In particular, there is strong interest in move-in rights for apartments where the building has already been torn down or is highly likely to be demolished before the tax base date."
A move-in right is the right for a redevelopment or reconstruction association member to receive a new apartment after completing the maintenance project. Under tax law, once a management and disposal plan is approved, the former dwellings are converted into an association member's move-in right.
Holding taxes on move-in rights after demolition fall because once the building is torn down, the taxable object changes from dwellings to land. At maintenance project sites, after demolishing existing buildings, the association reports the demolition to the competent authority and proceeds with procedures to delete the building register and record the demolition.
If it is recognized that the building has been effectively torn down or demolished before June 1 each year, the property is excluded from the dwelling portion of the property tax and the comprehensive real estate tax. If the land provided for the maintenance project is recognized as subject to separate taxation, only the land portion of the property tax is paid and the land portion of the comprehensive real estate tax is not imposed.
Tax accountant Seo Jin-hyeong at Hanwha Life Insurance Financial Services said, "If it is recognized that the building has been effectively torn down or demolished before the tax base date, it is reflected in that year's property tax and comprehensive real estate tax," adding, "If the actual timing of demolition is unclear, it can be determined based on the demolition date recorded in official registers such as the building ledger."
Even if you want to buy a move-in right, the available items to transact are limited. In speculative overheating districts such as Seoul, transfers of association member status are in principle prohibited after association establishment approval for reconstruction and after management and disposal plan approval for redevelopment. An exception allows a transaction only if the seller is a single-household, single-home owner who has held the relevant dwellings for more than 10 years and lived there for more than five years, or if there is a reason specified by law such as inheritance or divorce.
Seo Jin-hyeong, a professor in the real estate law and administration department at Kwangwoon University, said, "When the tax burden grows, it is natural for market participants to look for investments that can reduce it," adding, "Interest in move-in rights after demolition can be seen as a balloon effect from the tightening of holding taxes."