The property tax overhaul the government unveiled early this month is pushing up prices of low- and mid-priced apartments in Seoul. According to the Korea Real Estate Board (REB), apartment sale prices in Seoul rose 0.22% in the third week of August from the previous week. Seocho and Gangnam districts, where high-priced apartments are concentrated, declined for a second straight week as owners rushed to sell to avoid the tax burden. But districts such as Seongbuk (0.45%), Jungnang (0.44%), Jung (0.41%) and Seodaemun (0.41%) climbed relatively steeply.
The fact that apartment price gains in the Gangbuk area north of the Han River, home to many low- and mid-priced apartments, more than doubled the citywide figure can be seen as a result of the property tax overhaul announced on the 3rd of this month. The plan excludes owner-occupiers of a single home worth up to 2 billion won in market value from the comprehensive real estate tax. Demand then flooded into apartments priced just below that line, driving values up toward the threshold — a balloon effect known as "clustering toward the 2 billion won mark." It closely mirrors a pattern seen whenever past governments tightened the comprehensive real estate tax threshold, as listings just below the cutoff stirred.
Moreover, in Seoul's Gangbuk area, rising apartment prices have dragged average monthly rents up alongside them, topping 1.5 million won for the first time last month. Some worry the increase will have grown even larger this month. After actual transaction prices for Seoul apartments jumped 2.5% in June from the previous month — the largest gain in five years — the tax-driven balloon effect has piled on, deepening housing insecurity for low- and middle-income households.
Above all, the problem with this tax overhaul is that it effectively lumps together long-term owner-occupiers of a single home with speculative multiple-home owners. That is why 2,461 residents of Seocho District have come forward to press the government, point by point, to protect long-term owner-occupiers and set out transitional provisions. In a Gallup Korea survey, negative responses to the tax plan (45%) were double the positive assessments. That concerns are being voiced across both ruling and opposition parties is not to be taken lightly. Taxation should be a finely tuned device that supports market stability, not a force that presses home prices down. Even before it takes effect, this tax overhaul is producing a string of side effects, including harm to owner-occupier buyers. Rather than repeating its habitual stopgap fixes, the government should undertake sweeping revisions and improvements during the National Assembly's review.
