SEOUL, Sept. 13 (Korea Bizwire) – South Korea’s government said Thursday that owners of high-value houses and multiple homes will face tougher taxes than originally planned as it strives to rein in soaring housing prices.
Over the past year, the Moon Jae-in government has unveiled a series of measures to curb housing prices that have had little impact on the market.
Alarmed by the fastest gain in a decade in housing prices in Seoul, the government said it would further raise the tax burden on owners of high-priced houses and multiple homes and increase housing supply in Seoul and adjacent areas.
Under the new measures, the finance ministry said it would raise the so-called comprehensive real estate tax rate for properties valued at between 300 million won (US$267,000) and 600 million won to 0.7 percent, higher than the originally proposed 0.5 percent.
The rate for a property priced at between 600 million won and 1.2 billion won will be raised by between 0.25 percentage point and 0.55 percentage point, with the maximum rate to be raised to a maximum 3.2 percent from the current 2 percent.
The ministry also said it will seek to raise the taxable rate of a property, which is now 80 percent of the government-set value. The rate should climb to 100 percent by 2022, compared with the originally proposed 90 percent by 2020. In South Korea, the government usually taxes land and homes based on its annual assessment value instead of the actual market value.
The comprehensive real estate tax, first introduced in 2005 under late President Roh Moo-hyun, has long been controversial here. Taxation on owners of expensive houses and owners of multiple homes during the Roh administration faced a strong backlash, which in turn led to a drop in the approval rating of the left-of-center government.
The conservative Lee Myung-bak government eased the tax scheme. But the liberal Moon Jae-in government, which shares most of the economic policies of the Roh administration, has vowed to impose heavy taxes on owners of high-priced homes and multiple homes, which it claims is the main cause of soaring home prices in Asia’s fourth-largest economy.
Apartment prices in the affluent Gangnam district and some other neighborhoods have jumped on hopes of reconstruction projects moving forward and ample liquidity circulating in the economy.
The Bank of Korea’s eight rounds of rate cuts since 2012 have helped send home prices and household debt to record levels as more people take out loans to buy homes.
Last year, the government unveiled a set of measures to tighten lending rules on homes to try to cool the overheated property sector.
It adopted stricter rules requiring multiple-home owners to pay higher capital gains tax when they sell their houses. The government, moreover, toughened the loan-to-value and debt-to-income ratios for new loans, which effectively limits homebuyers’ ability to get home-backed loans based on the value of property they own and their income.
Despite such measures, speculative home buyers have not budged an inch, and the upward trend of apartment prices in the Seoul area has actually accelerated.
The measures also include tougher restrictions on the purchase of additional homes by multiple-home owners and more rules on such owners.
The government will, moreover, increase the home supply in Seoul and surrounding areas to strike a better balance between supply and demand and help tame rampant prices.
The Ministry of Land, Infrastructure and Transport will seek new housing sites to build more apartment buildings and expand on plans to build 300,000 new homes going forward.