Ruling party desperate to play to voter base

Apartment complexes in Seoul. Korea Times file

By Lee Kyung-min

The ruling party plans to tax only the top 2 percent of owners of one home, in a major change to a previous policy concerning Comprehensive Real Estate Tax, imposed on housing with an officially appraised value of over 900 million won ($816,000).

The much-rushed, politically motivated move ahead of the presidential election next year seeks to play to the ruling party's voter base, enraged by the rapidly diminishing prospects of owning a home ― let alone maintaining stable living arrangements as tenants.

The tax code governing expensive housing was set in 2009 and has never been revised, but the course correction is inevitable since the number of homes that are over 900 million won in value has increased six-fold in recent years.

The spike in Seoul's apartment prices resulted from two dozen botched real estate policies defined by heavier tax and tightened lending rules, the combination of which led to a growing number of landlords raising rent on their tenants or evicting them.

Data from the People's Solidarity for Participatory Democracy released March 3 showed the price of a 99-square-meter apartment in Seoul rose to 1.14 billion won in January, nearly double from 640 million won in May 2017.

A special committee on real estate under the ruling Democratic Party of Korea said the discussion will be concluded before July. The revision if put forth will raise the minimum market value of housing subject to the tax to 1.6 billion won, up from 1.3 billion won. The plan comes just two days before Tuesday, when the highest tax on capital gains from trading housing was raised to 75 percent, up from 65 percent.

People who sell a home within one year of purchase will be imposed a tax rate of 70 percent, up from 40 percent. Those who sell after owning between one and two years will face a tax of 60 percent, from the previous rate of between 6 percent and 45 percent.

Meanwhile, according to data from Rep. Yoo Gyeong-joon of the main opposition People Power Party, the burden of real estate-related tax for Koreans is the third-heaviest among Organization for Economic Cooperation and Development (OECD) member nations. They include taxes for retaining and trading real estate, capital gains tax, inheritance tax and gift tax.

The combined taxes amounted to 4.05 percent of Korea's nominal gross domestic product (GDP), over double the OECD average of 1.96 percent.

When measured only by taxes for retaining property in proportion to GDP, the ratio for Korea was 1.2 percent in 2020, exceeding the OECD average of 1.07 percent. The figure remained below the OECD average at 0.92 percent in 2019, a further jump from 0.82 percent in 2018.