The government's decision to extend tax breaks on unsold, completed housing in non-metropolitan regions, even amid its push to strengthen property holding taxes, reflects a judgment that it cannot afford to leave the regional housing market slump unaddressed.
According to the Korea Real Estate Board on the 9th, apartment sale prices in the first half of this year (as of June 29) rose 3.21% in the greater Seoul metropolitan area and 5.11% in Seoul, while regional areas gained just 0.17%. Major regional markets fell, including Daegu (-0.73%), Gwangju (-1.57%), and Jeju (-1.03%).
Unsold completed housing is also clearly concentrated in the regions. According to the Ministry of Land, Infrastructure and Transport, as of last May, unsold completed housing in non-metropolitan areas stood at 24,522 units, 5.1 times the 4,828 units in the greater Seoul area. The four regions of Daegu, South Gyeongsang, North Gyeongsang, and Busan alone accounted for 43.1% of the nation's unsold completed housing.
Along with the unsold-housing tax break, the government plans to extend the so-called "second-home" tax break, designed to bolster housing demand in areas such as those with declining populations. Under this capital gains tax and comprehensive real estate tax break, buyers who additionally purchase a home meeting certain requirements in population-declining areas retain their status as single-home owners. It is set to expire at the end of this year.
Earlier, the Ministry of Economy and Finance stated in this year's tax expenditure basic plan that it would eliminate unnecessary reduction programs. However, the two tax breaks are expected to have their sunset dates extended amid concerns that the regional real estate slump could spread to the construction sector and the broader local economy.
The problem is that the more such exceptions are repeated, the more the standard dividing single-home owners from multiple-home owners can be shaken.
The principle is to vary the tax burden according to the number of homes owned. But as tax breaks that exclude additionally acquired homes from the count grow—citing reasons such as clearing unsold housing or supporting population-declining areas—more cases emerge in which even the same two-home owners receive single-home owner tax breaks depending on the tax item and requirements. While the need to support the regional housing market is significant, the accumulation of exceptions inevitably makes the tax system more complex and reduces taxpayers' ability to predict.
Hong Ki-yong, honorary professor at the College of Business Administration at Incheon National University, said, "Since a home is an asset to which tax rules apply over a long period from acquisition to disposal, taxpayers must be able to predict their tax burden." He added, "Even if the tax breaks are extended, if people believe that holding taxes or capital gains taxes could change again in the future, demand to buy regional homes will not easily move."
In particular, as long as tax easing and stronger holding taxes are pursued simultaneously, the structural complexity of the property tax system—in which tax burdens diverge depending on region and number of homes owned—is not expected to be easily resolved.
