Opposition party to remove tax incentives for foreign real estate investors

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By Lee Kyung-min

Foreign nationals may no longer be able to enjoy up to a 30 percent reduction in capital gains tax when selling their homes after retaining them for over three years, as a main opposition lawmaker said Tuesday he is seeking to remove the incentive long granted to long-term property investors from overseas.

The move by Rep. An Byung-gil of the United Future Party (UFP) is the latest in a series of anti-real estate speculation measures pushed jointly by both ruling and opposition parties as well as the government amid the steady rise of apartment prices in Seoul following ― and despite ― two dozen botched real estate policies over the past three years.

Also included in the bill is removing the deductible of up to 10 percent on gains made by the owner of a government-built apartment when selling it after renting it out for at least six years.

“The continued housing market overheating is illustrated in part by foreign nationals buying a record-high number of homes, many of which are used as a method of making short-term, windfall gains at the expense of ordinary Korean people who are forced to buy homes at a price much higher than it otherwise should have been,” he said.

The Korea Appraisal Board data showed the number of properties purchased by foreigners for investment purposes stood at a record-high of 2,273 in July.

This is the highest figure since 2006 when the organization began compiling related data, and is a further jump from the then-record high of 2,090 in June 2020.

The move follows a call for stricter rules by ruling Democratic Party of Korea floor leader Kim Tae-nyeon who raised concerns that foreigners could end up buying most homes made available on the market following the government's curbing measures including heavier taxes on multiple home owners.

Policies under review include those in use in Singapore, New Zealand and Canada that have a higher tax rate on transactions of homes bought by foreigners for investment purposes.

Currently, Korea imposes an acquisition tax of between 1 percent and 4 percent depending on the number of homes bought on all property purchases.

But a maximum 20-percent acquisition tax is being mulled over, applicable to foreigners who fail to live in the registered property for at least six months, a basis for the government to deem the property has been bought for the purpose of investment, not as a primary residence.

The issue is drawing broad support regardless of political leanings and has been further advanced by a bill put forth by Rep. Lee Yong-ho, an independent with no party affiliation, which seeks to increase the current single-digit acquisition tax for foreigners to up to 30 percent.

Lee is also seeking to impose 5 percent in capital gains tax in addition to the current rate which is 62 percent for owners of two homes and 72 percent for owners of at least three homes.

This means foreigners that have three homes or more may have to pay up to 77 percent in capital gains tax.

Myongji University professor of real estate Kwon Dae-jung said raising the rate may sound harsh but is an understandable move nonetheless, because most other countries do the same.

“Foreign buyers essentially remain free to buy real estate anywhere they want without hurdles in Korea because they do not necessarily borrow money from Korean banks that apply strict lending rules defined by borrowing amounts limited on a loan-to-value ratio and debt-to-income ratio. A heavier tax on them is somewhat justified given other countries tend to be stricter against foreign speculative forces,” he added.