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| Apartment complexes in Seoul. Korea Times file |
By Lee Kyung-min
Foreigners with income earned in Korea will be able to seek greater deductions for monthly interest paid on mortgages, a measure that will help reduce housing costs for long-term residents and their families, a ruling party lawmaker said Thursday.
This is in line with a previous ruling made by the Tax Tribunal which found that the law not granting foreigners who have lived in Korea for over five years the same benefits granted to Koreans undermines principles of equality, a decision that essentially recommended a revision to the relevant tax code.
Under the bill proposed by Rep. Kim Ju-young of the ruling Democratic Party of Korea, which passed the National Assembly Wednesday, foreigners with long-term mortgages will be able to receive a tax deduction based on a variety of conditions including the period of ownership and the value of the house at the year-end tax settlements.
Currently the benefit is granted to Koreans if they have paid interest on a mortgage for over 15 years, and if the loan was inked within three months of having the necessary paperwork registered with a district office.
They can seek the benefit if they have continuously lived in the house and if the price of the house was less than 400 million won ($364,100) at the time of purchase. For houses purchased before 2014 the value must be below 300 million to be eligible.
Data submitted to Kim from the Anti-Corruption & Civil Rights Commission showed there were 15,988 approved long-term mortgage loans sought by foreigners here between 2014 and 2018. The amount stood at 1.98 trillion won.
Meanwhile, the policy seeks to distinguish foreigners that purchase property as a primary dwelling versus those engaged in speculation amid continued moves to crack down on the latter.
Many foreign speculators have been criticized as they essentially remain free to buy real estate here without hurdles.
They can do so because they do not necessarily borrow money from Korean banks that apply strict local lending rules defined by borrowing amounts limited on a loan-to-value ratio and debt-to-income ratio.
This is why many lawmakers are calling for a heavier tax on them given other countries tend have stricter regulations to protect against ill effects of property speculation ― one of multiple factors thought to contribute to the continued spike in housing prices here.
The most recent move was made by Rep. Hong Seok-joon of the main opposition People Power Party who said Tuesday that he has proposed a bill seeking to remove a variety of tax incentives given to foreigners when they realize capital gains from buying and selling houses.
"Discussions are underway for the lawmakers to increase the rate for acquisition and capital gains tax, but there are too many loopholes for foreigners to easily seek gains without paying hefty amounts of tax imposed on Koreans," he said.
Previous bills introduced by Kim to crack down on foreign real estate speculation include prohibiting land purchases by Chinese citizens, a measure he said is needed since Koreans cannot buy land in China, while Chinese investors are raking in profits from property speculation here.
Data submitted to the opposition lawmaker from Statistics Korea showed Chinese-owned land amounted to 19.3 square kilometers in 2019, over a 14-fold increase from 3.69 square kilometers in 2011.
The bill will help strengthen the rule of reciprocity that governs international relations and treaties, whereby favors, benefits or penalties that are granted by one state to the citizens or legal entities of another, should be returned in kind.
