SEOUL, Nov. 3 (Korea Bizwire) — South Korea will raise government-set home prices for all types of real estate, including apartments and land, to up to 90 percent of their market prices in the next 10-15 years, the transport ministry said Tuesday.
The government commissioned the Korea Research Institute for Human Settlements (KRIHS) in February to find ways to reflect the market prices of real estate in the state assessment price for taxation.
The planned increase came as government-set home prices rose sharply in tandem with a gain in transaction prices. In South Korea, the government usually taxes land and homes based on its annual assessment value instead of the actual market value.
Last week, the KRIHS proposed three options to raise the officially appraised value of real estate to up to 80, 90 or 100 percent of their market prices from the 50 to 70 percent this year.
The government decided to adopt the 90 percent proposal to have owners of expensive homes and multiple homes pay higher property taxes, according to the Ministry of Land, Infrastructure and Transport.
“There has been growing calls for the government to ‘realize’ the low rates of reflection of market prices in the state-set prices of apartments, individual houses and land,” the ministry said in a statement.
The government will raise the state assessment prices of apartments to 90 percent of their market value in the next 10 years from the existing 69 percent, those of individual houses to 90 percent in the next 15 years from 53.6 percent currently and those of land to 90 percent in the next eight years from 65.5 percent, according to the ministry.
Meanwhile, the government said it will begin lowering property taxes for those who own one house worth less than 600 million won (US$530,000) next year.
The government has announced more than 20 rounds of measures to stabilize the real estate market in the past three years, but the measures have fallen short of curbing home prices amid low interest rates and ample liquidity in the markets.
In July, the government announced its toughest measures yet to rein in rising housing prices in a series of steps, including tax hikes and loan regulations.
Under the proposed tax measures, the government will raise property ownership tax rates for multiple-home owners.
In the same month, the ruling Democratic Party, alarmed by spiking home prices and growing public outcry, rammed through bills to allow tenants to extend their two-year jeonse contracts for another two years and place a cap of 5 percent on increases in jeonse deposits when the contracts are renewed.
Jeonse is a localized property lease system in which tenants pay a large deposit instead of monthly rent. It usually consists of a two-year contract, with the homeowner paying back the principal upon the completion of the contract.
Experts warned that the passage of the tenant protection laws will push up jeonse home prices in the long term and that landlords will increasingly switch jeonse contracts to monthly rental deals without a lump-sum deposit.