South Korea Eyes Tax Reforms to Curb 'One Excellent Property' Trend

South Korea is moving forward with significant tax reforms aimed at reining in the concentration of wealth in single, high-value properties, often referred to as the "one excellent property" phenomenon. The proposed changes will adjust holding taxes based on a property's price, whether it is owner-occupied, and the number of homes owned.

The core of the reform involves creating a more nuanced tax system. High-priced homes, properties held by non-residents (often linked to "gap investment" or leveraged purchases), and multiple-home ownership will face increased tax burdens. Conversely, properties that are owner-occupied, cater to the middle class, or are located in provincial areas will receive tax relief. This approach seeks to create a "detailed differentiation" in tax application.

Specifically, the government is considering a "three-group design" for the comprehensive real estate holding tax. This would involve differentiating tax burdens into three tiers: a basic exemption group, a moderate burden group, and a super-high-price group. The basic exemption threshold, currently set at 1.2 billion won (based on official appraisal value), may be slightly raised to reflect rising property values. The moderate burden group would see taxes maintained or slightly increased, while the super-high-price group, likely defined as properties valued between 2 billion and 3.5 billion won (official appraisal), would face significantly higher taxes through increased rates.

Further adjustments are being considered for tax credits such as long-term holding deductions (20-50%) and elderly deductions (20-40%) for the comprehensive real estate holding tax. The government is examining whether to maintain the existing system or more actively incorporate owner-occupancy status. For capital gains tax, a long-term holding special deduction is likely to shift from rewarding the holding period (up to 40%) to emphasizing the residency period (up to 40%), aiming to discourage speculative investment in "one excellent property."

While experts agree that incentivizing owner-occupancy and reducing tax burdens for multi-home and non-resident owners is a positive direction, concerns linger about the potential complexity of the tax system. Overly intricate regulations could decrease public acceptance and lead to administrative inefficiencies. For instance, accurately determining "owner-occupied" status for homes with unavoidable non-residency periods would require substantial on-site investigations by tax authorities. Additionally, there are ongoing discussions about shifting the primary basis for property and capital gains taxes from the number of homes owned to their asset value, aiming for a simpler and more efficient tax structure.

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The problem with our country's holding tax is not weak nominal progressivity, but rather that the actual tax burden and asset value have become weakly linked due to the overlap of special cases, deductions, and differences by the number of homes.