South Korea Eyes Property Tax Hikes and Reduced Rental Incentives

South Korea is poised to adjust its property tax system in July, with proposals to increase holding taxes and scale back tax benefits for registered rental housing. The government views these measures as necessary to preemptively address potential real estate speculation, particularly as increased liquidity from semiconductor industry bonuses and a robust stock market could flow into the property sector. President Lee Jae-myung has consistently advocated for a more rational approach to property and capital gains taxes. He recently stated on Facebook that "normalizing real estate taxation is necessary" and that "adjusting holding and capital gains taxes is a reasonable and correct direction." He warned that the influx of funds from semiconductor bonuses and export payments could reignite property market demand, echoing past trends where such liquidity invariably found its way into real estate. Lee anticipates the most critical period for potential market overheating to be late this year and early next. In line with the President's remarks, the Ministry of Economy and Finance is reportedly considering several options to increase holding taxes. A leading proposal involves raising the fair market value ratio for comprehensive real estate holding tax, thereby increasing the tax burden without altering the nominal tax rates. Other possibilities include raising taxes on ultra-high-value single-family homes or adjusting the nominal tax rates themselves. Additionally, the government is looking to reduce the long-term capital gains tax deduction for single-home owners who do not reside in their properties, a measure often associated with the "one excellent house" investment strategy. The government is also signaling a reduction in tax benefits for registered rental housing providers. Lim Kwang-hyun, Commissioner of the National Tax Service, suggested on X that providing an "exit opportunity" for multi-home owners registered as landlords could release approximately 68,000 apartments in Seoul back onto the market. This aims to address the "lock-in effect" where tax benefits discourage owners from selling their properties after their mandatory rental periods expire. Lim noted that out of 27,000 registered rental apartments in Seoul whose mandatory periods have ended, an estimated 25,000 remain with their original owners. With around 43,000 more registered rental apartments set to automatically lose their status by 2028, the government sees a clear need to adjust these incentives, especially given the stated goal of supplying 60,000 homes in the Seoul metropolitan area under recent housing policies.

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Adjusting holding and capital gains taxes is a reasonable and correct direction.