The government is moving to overhaul its property tax system to curb housing speculation. It is reviewing a redesign of the taxation framework based on the "total tax burden" that a taxpayer pays across the entire process of buying, holding and selling a home. The number of homes owned, whether the owner actually lives in them, and the form of transactions are all said to be under consideration. There is a possibility that measures will be pursued to raise the burden of acquisition tax, holding taxes (property tax and comprehensive real estate tax), and capital gains tax. Also under discussion is reducing or abolishing the special long-term holding deduction for single-home owners in line with the principle of actual residence.
At a press conference marking the first anniversary of his inauguration on Sunday, President Lee Jae-myung said, "Let's impose a burden on non-residential homes held for speculative or investment purposes." In particular, he pointed out that "Korea's holding taxes are generally low," adding that "even if people buy up many homes, there is little burden." On the jeonse system (a Korean lease system requiring a large lump-sum deposit instead of monthly rent), he assessed it as "a system that exists only in Korea, a kind of private financing," and said that "extending large amounts of jeonse loans has been the main cause of housing price increases."
However, whether strengthening property taxes will be a solution for market stability needs to be carefully examined. As of 2023, Korea's property-related taxes as a share of gross domestic product (GDP) stood at 2.67 percent, more than double the average of Organization for Economic Cooperation and Development (OECD) member countries at 1.27 percent. Property holding taxes also came to 1.23 percent of GDP in 2022, exceeding the OECD member average of 0.93 percent. The low effective tax rate is not because taxes themselves are low, but rather a result reflecting high property prices. In this situation, if the tax burden is raised sharply, the market shock will inevitably be passed on to genuine homebuyers. Moreover, if jeonse is branded as private financing and squeezed, demand could shift toward monthly rentals, triggering a shortage of monthly rental homes.
The fundamental solution for stabilizing the housing market ultimately lies in expanding supply. In core areas of the Seoul metropolitan region, where securing new housing sites is difficult, the government must accelerate reconstruction and redevelopment projects and ease regulations to expand the supply of residential officetels within commercial districts. If it focuses only on suppressing demand through taxation, finance and regulation without expanding the supply base, this could lead to shrinking transactions and a reduction in listings, further heightening market instability. Now is the time to look back on the failure of the Moon Jae-in government, which turned tax laws into a patchwork and overused lending restrictions in an attempt to rein in property prices, yet still failed to prevent a surge in housing prices.
