Seoul weighs retreat on real estate tax for homeowners amid party pressure

The South Korean government is grappling with a significant policy dilemma over the comprehensive real estate tax (Jongbuse) for single-homeowners, facing intense pressure from the ruling Democratic Party to revise its recently announced tax reform plan.

The core of the dispute lies in the proposed differentiation of Jongbuse based on whether a homeowner resides in their property. The government's initial plan, announced earlier this month, aimed to increase the basic tax exemption for resident homeowners to 1.4 billion won from the current 1.2 billion won, while lowering it for non-resident homeowners to 900 million won. This move was intended to reinforce the government's long-standing emphasis on the 'actual residency' principle.

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We are closely monitoring the impact of the supplementary measures for tax reform on the market, and are carefully reviewing the extent to which supplementary measures should be prepared, especially as it could send a signal that 'you can just wait it out with real estate.'

However, the ruling party is strongly advocating for the removal of this distinction, pushing for the non-resident homeowner exemption to be restored to the current 1.2 billion won level. This pushback has put the Ministry of Economy and Finance in a difficult position. Officials are concerned that reversing the policy, especially after it was emphasized by the President and agreed upon in party-government consultations, could erode public trust in government policies.

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Is the Democratic Party trying to rebrand itself as a 'party of tax cuts for the rich?' We urge a review from scratch of the plan to raise the Jongbuse tax base for single-homeowners (residents) from 1.2 billion won to 1.4 billion won, which would exclude a significant number of high-priced homes from taxation altogether.

More critically, such a concession might send a dangerous signal to the real estate market: that property owners can effectively force the government to backtrack by simply waiting out policy changes. This could undermine the very principle of prioritizing actual residency that the government has championed. The Ministry is closely monitoring market reactions, noting that some high-priced apartment complexes in Seoul have already seen a trend of low-priced listings being withdrawn and asking prices being raised in anticipation of potential tax relief.

Experts and civic groups have voiced opposition to the potential rollback. Groups like the People's Solidarity for Participatory Self-Government have criticized the ruling party's stance, questioning if it aims to become a "party of tax cuts for the rich." Professor Jung Sae-eun of Chungnam National University also warned that retreating from the proposed reform due to public outcry would make future efforts to normalize real estate taxation, centered on holding taxes, increasingly difficult.

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If we retreat this time due to public outcry, it will be difficult to expect the normalization of real estate taxation centered on holding taxes in the future.