Korea Overhauls Property Tax After Four Years, Shifts to Value-Based Criteria

*Editor's Note: 'AI PRISM' (Personalized Report & Insight Summarizing Media) is an "artificial intelligence (AI)-based customized news recommendation and summary service" developed with support from the Korea Press Foundation. It selects and provides six customized news items by reader type.

1. Comprehensive Real Estate Tax Basis Shifts from Number of Homes to Aggregate Value

Key Summary: The government has settled on a final direction to shift the comprehensive real estate tax basis from the number of homes owned to the aggregate housing value. Instead of the current maximum 5.0% heavy taxation system applied to owners of three or more homes—which would be abolished or integrated into the basic rate—a plan to separately set an ultra-high-end bracket for assessed values of 3-4 billion won or more and concentrate the tax burden there is likely. The basic deduction for single-home owners would be raised slightly from the current 1.2 billion won, while long-term ownership and elderly tax deductions are likely to shift from being based on the simple holding period to being centered on actual residence. For multi-home investors, some burden may be eased with the abolition of the heavy taxation system, but ultra-high-end single-home owners and those holding for non-residential investment purposes are forecast to instead see their tax burden increase.

2. Jamsil Officetel Doubles in a Year… Redevelopment Expectations Drive Record High

Key Summary: A 63-square-meter unit in the Jamsil Hanshin Core officetel in Sincheon-dong, Songpa-gu, Seoul, traded at 1.4 billion won this month, setting a new record high. Compared with the 700 million to 800 million won range at which it traded from May to July last year, the price has nearly doubled in a year. Analysts say the price rise is being led by expectations that officetel owners will also be able to receive apartment allocations as the redevelopment project gains speed. The preparation committee filed a development plan with the Songpa-gu Office in April this year with a consent rate of 51.82%, targeting project implementation approval by the end of next year. However, some point out that because rights value and sale prices are calculated through appraisals during the project implementation process, it is difficult to accurately predict whether apartment allocation will be possible at the early stage of the project.

3. Gangnam Station's Dongkyung and Sangkyung Buildings Reborn as Prime Office After 40 Years

Key Summary: Koramco Asset Management has begun work to integrate the Dongkyung and Sangkyung buildings near Gangnam Station and redevelop them into a mixed-use complex of prime office and tourist accommodation facilities spanning seven basement floors to 24 above-ground floors with a total floor area of 12,390 pyeong. A schedule is under review to sign a contract as early as next month, establish a project REIT, and close the deal in September. With GBD prime office rents overtaking the CBD for the first time since 1997, the project is said to have attracted initial investment from both financial investors (FI) and strategic investors (SI). In the IB industry, the assessment is that investor preferences are shifting from the CBD, where there are concerns about oversupply, to the GBD.

4. Ultra-High-End Comprehensive Real Estate Tax Threshold Likely at 3-4 Billion Won Assessed Value

Key Summary: Assessed values of around 3-4 billion won, or roughly 4-5 billion won at market prices, are being cited as likely thresholds for the ultra-high-end comprehensive real estate tax bracket. Currently, in the 3-5 billion won tax base bracket, an owner of three or more homes pays 66.66 million won per person in comprehensive real estate tax, 41.94 million won more than a single-home owner (24.72 million won), so this reform moves in the direction of somewhat easing the tax burden on multi-home owners. On the other hand, there are concerns that for ultra-high-end single-home owners who do not actually reside in their properties, the burden could surge sharply if both a non-residence weighting factor and the ultra-high-end bracket rate are applied simultaneously. Considerable controversy is expected in the process of establishing detailed criteria, including the legal definition of holding for speculative purposes and the scope of application of overlapping surcharge factors.

5. KB Kookmin Bank Expands Redevelopment Project PF Credit Enhancement 163%

Key Summary: KB Kookmin Bank's new PF credit enhancement in the first half of this year reached 3.376 trillion won, accounting for 40.6% of the total among the four major commercial banks (8.3163 trillion won). Concentrated support was provided to major redevelopment projects such as the Hannam District 2 (802.5 billion won) and Jangwi District 10 (792.7 billion won) redevelopments, and the total new PF credit enhancement among the four major commercial banks also rose 37.3% from the same period a year earlier. With Seoul housing completion volumes falling 41.6% from a year earlier through May this year and only half of the permitted volumes from 2020-2022 leading to construction starts, improvement in redevelopment project financing conditions is forecast to be the key to future recovery of supply volumes.

6. Officetel Jeonse Prices Overtaking Sale Prices in Succession… Continued Avoidance by Non-Homeowners

Key Summary: For the Songpa I-Park's 49.9-square-meter unit near the Munjeong Legal Town in Songpa-gu, Seoul, jeonse (a Korean lease system requiring a large lump-sum deposit instead of monthly rent) asking prices are in the 520 million to 600 million won range, while the lowest sale price is 580 million won—a price reversal in which jeonse prices exceed sale prices is occurring in succession. Nevertheless, actual-demand buyers are avoiding purchases on the grounds that officetels are counted in the number of homes owned and could become an obstacle to acquiring an apartment in the future. As the bar for jeonse deposit insurance enrollment has risen, cases of landlords converting residential units to business use or switching to monthly rent are increasing, and one-room monthly rents have jumped 20% from 1 million won to 1.2 million won, adding to tenants' burdens.