South Korea's government has moved to reconsider its property tax overhaul just 20 days after unveiling it on August 3, as the ruling party and the government reached common ground on not applying the comprehensive real estate tax differently to non-resident single-home owners than to those who live in their homes. The shift is seen as the result of resistance within the ruling party combined with worsening public sentiment on housing, centered on Seoul.
The government is now expected to raise back the basic deduction limit for the comprehensive real estate tax on non-resident single-home owners, which had been set to fall from 1.2 billion won to 900 million won, and to ease the tax burden cap that had been slated to rise from 150% to 200%.
According to political sources on the 24th, the government and the ruling party held a high-level party-government meeting the previous day to discuss easing the tax burden on non-resident single-home owners. The government had earlier proposed cutting the basic deduction for non-resident single-home owners from 1.2 billion won to 900 million won, while raising the deduction for those living in their homes from 1.2 billion won to 1.4 billion won. The Democratic Party, however, strongly opposed setting different tax burdens for single-home owners based on whether they live in the home.
Democratic Party leader Kim Min-seok said at the meeting that day that "even if the current system is maintained, the tax burden on non-residents naturally rises as published prices increase," adding that the proposal to adjust the basic deduction and tax burden cap for non-resident single-home owners "requires deliberation." Park Sung-jun, the party's chief spokesperson, said the party "strongly requested that no distinction be drawn between resident and non-resident single-home owners."
As a result, options under discussion include returning the basic deduction for non-resident single-home owners to 1.2 billion won or raising it to 1.4 billion won, the same as for those living in their homes. If the deduction is restored to 1.2 billion won, homes with a market value of under about 1.7 billion won — corresponding to a published price of around 1.2 billion won — could be excluded from the tax. If it rises to 1.4 billion won, homes with a market value of under about 2 billion won could also fall outside its scope.
The tax burden cap is also under review. The government had earlier decided to raise the comprehensive real estate tax burden cap from 150% to 200% year-on-year, but voices within the party call for lowering it back to 150%. Plans to raise the fair market value ratio from the current 60% to 70% in 2027 and 80% in 2028 are also being discussed for adjustment. Specific figures, however, have not yet been finalized.
The residency requirement for the long-term holding special deduction on capital gains tax may also be eased. The government's proposal would recognize a certain period as residency in cases of unavoidable circumstances such as job transfers, changing employers, medical treatment, schooling, overseas stays or caring for parents. The government and the ruling party are considering further expanding the scope of exceptions. Options under discussion include broadening recognition to cover single-home owners who moved their actual place of residence for reasons such as child-rearing, parenting or caring for family members.
Analysts say the decision to change course just 20 days after announcing the tax overhaul is not unrelated to the recently worsened public sentiment on housing. In a Gallup Korea survey of 1,004 adults aged 18 and over nationwide conducted from the 18th to the 20th, positive assessments of President Lee Jae-myung's handling of state affairs in the Seoul area stood at 32%, down 10 percentage points from the previous week. Negative assessments rose 9 percentage points to 56%. Park, the chief spokesperson, also said, "Any politician would naturally know that the drop in approval ratings is the fallout from public sentiment on housing."
The Democratic Party plans to coordinate the revised tax overhaul with the government, report it to a Cabinet meeting on September 1, and submit the related bill to the National Assembly on September 3.
Deregulation to expand supply is also picking up pace. The government and the ruling party decided to push a plan to transfer approval authority for redevelopment and rebuilding projects of 500 units or fewer to basic local governments such as autonomous districts. The aim is to disperse to autonomous districts the redevelopment authority held by the Seoul city government, thereby shortening approval procedures for small-scale projects.
Easing floor-area ratio rules for private redevelopment projects has also come to the negotiating table. The parties decided to actively review extending the floor-area ratio incentives applied to public redevelopment projects to private redevelopment and rebuilding as well. The People Power Party had earlier proposed raising the floor-area ratio to as much as 1.3 times the legal cap.
However, the ruling and opposition parties differ sharply over the transfer of approval authority for redevelopment projects. The People Power Party criticized the move as politically motivated, pointing out that Democratic Party members hold the majority of district office chief positions among Seoul's 25 autonomous districts. Choi Bo-yoon, the People Power Party's chief spokesperson, argued, "This is handing the reins to autonomous districts where most of the district chiefs are on their side," and, "It is not about promoting housing supply but about planting hands and feet that will move as the government wishes."
