Seoul: The Lee Jae Myung administration announced a controversial tax reform package that has raised concerns among homeowners and policymakers. The package, unveiled after five rounds of public debates on real estate policy, has led to a significant tax increase, contradicting previous promises to avoid using taxation as a tool for housing policy.
According to Yonhap News Agency, the newly announced tax package includes sharp increases in both the holding tax, known as the Comprehensive Real Estate Tax, and the transaction tax, the capital gains tax. These increases will apply even to single-home owners if they do not reside in the property or if the home exceeds a specified value. This marks a departure from previous Democratic Party of Korea policies, which were criticized for taxing owners of multiple homes more heavily, by now including single-home owners under the new tax regime.
The decision to impose these tax hikes on single-home owners has sparked criticism, with many arguing it unfairly targets certain socioeconomic groups. Critics assert that the government is attempting to create a division among taxpayers and deflect blame from its own policy failures, highlighting that the recent surge in housing prices is largely due to inflation and previous policy shortcomings.
The administration's move to raise holding taxes without corresponding adjustments to the capital gains tax deduction system has further complicated the real estate market. Traditionally, single-home owners in Korea could benefit from capital gains tax deductions when selling their homes after long-term ownership, easing their tax burden. However, the reduction of these deductions now places a heavy financial strain on long-term homeowners, making it difficult for them to relocate.
The government has introduced a two-year transition period for the reduction of capital gains tax deductions, theoretically allowing homeowners time to sell their properties. However, the expansion of land transaction permit zones and stricter lending regulations have hindered property transactions, casting doubt on the effectiveness of this transition period.
Additionally, the tax hike primarily targets Seoul's high-value properties, valued at around 4.5 billion won ($3.2 million) or more, raising questions about the affordability of these homes for potential buyers. Critics argue that the policy may force retirees, unable to pay the increased taxes, out of the homes they have lived in for decades.
The experiences of previous administrations have shown that such tax hikes can distort the market rather than stabilize home prices. The current policy's approach, focusing on suppressing demand through increased taxes without addressing the need for more housing supply, has drawn skepticism from various corners of the real estate sector.