People Power Party presidential candidate Yoon Seok-youl (right) and Democratic Party candidate Lee Jae-myung (Yonhap)
Experts have cast doubt on recent pledges made by major presidential candidates and their parties on overhauling real estate tax rules, with critics raising questions over its feasibility and impact on the property market.
Yoon Seok-youl, the presidential nominee of the main opposition People Power Party, on Sunday vowed via Facebook to reexamine the comprehensive real estate holding tax, which is levied on high-value or multiple property owners.
The tax is currently levied annually between the range of 0.6 percent to 3 percent on homeowners with a single property valued over 1.1 billion won ($930,000) or 1.2 percent to 6 percent on multiple property owners -- holding two or three houses -- that have a combined value of 600 million won each.
Amid a heated real estate market, homeowners have been weighed down by worries over a heavier comprehensive ownership tax, which the Moon Jae-in administration has raised this year in apparent hopes that multiple homeowners would be pressured to sell their homes and increase market supply.
According to recent data compiled by the ruling Democratic Party, the number of people subjected to the comprehensive real estate tax has increased by an estimated 100,000 on-year to some 765,000 people this year. Separate government data showed that the comprehensive tax is expected to rake in a total of 5.1 trillion won this year, 42 percent more on-year. The National Tax Service will start handing out the related tax bills on Nov. 22.
Noting the concerns of taxpayers, Yoon said he would consider merging the comprehensive property tax with the basic property tax and exempting single homeowners from the comprehensive tax.
But experts say Yoon needs to add more details to his pledge, saying that not paying the comprehensive property tax just because the subjects are single homeowners would only further disrupt the market.
“Reconsidering the pledges made ahead of the election on downsizing the role of the tax rule that works as a brake to polarization of properties and other assets would be necessary,” Kim Yu-chan, a business professor at Hongik University said.
The People’s Solidarity for Participatory Democracy, an independent activist group, said “despite the snowballing figures, only 2 percent of the population is known to pay the comprehensive real estate tax and not paying the tax just because they own a single property would be adopting an unfair standard.”
Meanwhile, Lee Jae-myung, the presidential candidate of the ruling Democratic Party, has been proposing the so-called “public land ownership tax,” which would levy tax on all land owners. Though exact details have yet to be revealed, it would also levy tax on homeowners based on the value of the land their homes are built on.
Lee’s camp earlier estimated that adopting the new rule would draw in an annual 30 trillion won from taxpayers.
Experts say officials and lawmakers should be cautious in adopting such “unprecedented tax rules,” as they could pose a new threat to the real estate market.
“Merely increasing taxes would ultimately lead to a decline in investment and housing supply, there are currently no other countries in the world that levies such tax,” said Shim Kyo-un, a professor of real estate studies at Konkuk University.
Despite adopting more than 20 real estate measures since 2017, the Moon Jae-in administration has failed to curb the nation’s soaring housing prices.
The average price of an apartment unit measuring 82.4 square meters jumped around 80 percent from 660 million won in 2017 to 1.19 billion won in 2020, according to the Citizens’ Coalition for Economic Justice civic group. The organization examined 63,000 apartments in 22 apartment complexes in Seoul.
By Jung Min-kyung (firstname.lastname@example.org)