The core framework of the Lee Jae-myung administration's real estate policy can be described as heavier taxation on owners of a single home who do not live in it. After President Lee said at a New Year press conference in January, "Why should we cut taxes for someone who has held a property for a long time for speculation or investment without even living in it," the government began drawing up differentiated taxation measures for such owners in earnest.
But the policy's footing has narrowed. Much of this year's differentiated comprehensive real estate holding tax plan was rolled back under pressure from falling approval ratings, and five of the six minister nominees for the second-term cabinet were confirmed to have built their assets either as non-occupant single-homeowners or by stretching their finances to the limit with borrowed money. On top of that, the average apartment sale price in Seoul topped the 1.6 billion won mark for the first time last month, prompting concerns that the current course could turn into a repeat of the Moon Jae-in administration.
The written answers submitted by Lee Hyung-il, the nominee for deputy prime minister and minister of economy and finance, at his confirmation hearing on the 13th are drawing attention because they come at such a moment. Asked whether holding a home slated for rebuilding without living in it for a long period could be considered speculation, the nominee said, "Because there can be periods when living in a home undergoing a rebuilding project is difficult, there are aspects that make it hard to conclude that a property is speculative demand based solely on the fact that the owner did not live there."
The nominee himself is an owner of a single home who does not live in it — the very group this government has identified as potential speculators. He bought an apartment in Gwacheon, Gyeonggi Province, for 420 million won in 2009 and has held it for 17 years, but has actually lived there for only two stretches totaling four months. There are even suspicions that he did not actually reside there at all. The apartment, now demolished, is said to be worth more than 2 billion won. That leaves the government with weaker momentum to push its real estate policy forward.
As a result, some suggest the government may move to further ease rules on non-occupant single homes. An industry official said, "The nominee attached the condition 'only in the case of homes slated for rebuilding,' but with ordinary homes there are far more individual circumstances and exceptions." The official added, "It is hard to accept the argument that punitive taxation applies to someone who moved within Seoul for a child's education or to care for a parent, while non-residence in a home slated for rebuilding may in principle not be speculation." At a press briefing held shortly after his nomination, the nominee also said the government's direction is "to establish a residence-centered housing market," while adding that he "plans to reflect specifics if there is concrete discussion in the National Assembly."
Market watchers see the first likely step as easing rules to recognize a wider range of reasons for not living in a home. Under the tax code revision bill submitted by the government, a single-homeowner who has lived in the home for at least a year and then moves to another city or county for reasons such as a job transfer, a child's education, medical treatment, an overseas stay or caring for a parent may have up to three years of that absence counted as residence. Whether a move within the same city or county will be accepted as a qualifying reason is expected to be the key issue.
Another option under discussion is delaying or slowing the reduction of the special long-term holding deduction for non-occupants, which is set to take effect steeply through 2029. The deduction allows single-homeowners to deduct 8% of their capital gains a year — 4% for holding and 4% for residence — up to a maximum of 80%. The government plans to abolish the holding-based portion entirely by 2029 and to allow a deduction of 8% a year, capped at 1 billion won, only for periods of residence. Exceptions and special provisions are also being mentioned as possibilities, such as partially recognizing the holding-based deduction for homes used as rental housing over a long period. In particular, registered rental business operators who signed up under past government policies may see their disadvantage under the deduction eased, since mandatory rental periods make actual residence difficult for them.
Raising the 1.2 billion won deduction cap set for non-occupant single-homeowners to 1.4 billion won, the level applied to owner-occupiers, is seen as unlikely, however, as opposition to the idea runs strong within the Presidential Office. Officials in and around the office say the president's commitment to the principle of differentiated taxation on non-occupancy remains firm.
Meanwhile, if the comprehensive real estate holding tax is finalized as the government has proposed, the tax burden on owners of expensive homes who do not live in them would jump sharply. According to materials submitted for the nominee's confirmation hearing, the calculated holding tax for an owner of a single home assessed at 3 billion won — worth roughly 4.3 billion won at market prices — who does not live in it would rise from about 7.747 million won under the current system to 12.038 million won next year, an increase of 4.291 million won.
