New real estate taxation policy faces strong backlash

Apartment complexes in Seoul. Korea Times file

'Ruling party idea unconstitutional, lacks predictability'

By Lee Kyung-min

Criticism is mounting over the ruling party's plan to limit the targets of the comprehensive real estate tax to the top 2 percent of owners of one home, in what market watchers call a politically motivated move ahead of the presidential election next year.

The much-rushed, “unheard of and unconstitutional” idea is not only confusing homeowners who are not able to predict whether they will have to pay the hefty tax or not, but is also in danger of squandering administrative resources needed to determine the scope of the tax base set by assessing the value of homes every year.

Key specifics of the revision including officially appraising the value of homes are left to be finalized by government ministries-revised ordinances, bypassing the National Assembly.

This, some experts say, is unconstitutional since a relevant clause under the Constitution stipulates that the tax rate and the list of taxable income and assets must be set by the legislature.

The minimum state-assessed value of housing subject to the comprehensive real estate tax will be raised to over 1.2 billion won ($1.06 million) for homeowners of a single home, from the current 900 million won, upon the passage of a revision proposed by the ruling Democratic Party of Korea (DPK).

The number of people subject to the tax will more than halve to around 90,000, down from 183,000. The amount of taxes to be collected will drop to 129.7 billion won, down 33.7 percent from 195.6 billion won.

This decrease will lead to 1.2 percent less income from a combined 5.8 trillion won in the aforementioned real estate tax to be paid by 854,000 people including multiple homeowners.

Seoul National University economist Kim So-young said the unreasonable revision is a direct result of misdirected policy priorities.

“The revision is nothing short of giving a penalty to those who own what many wish to have and work hard for. The government should help create a decent living environment, not punish people for pursuing it,” he said.

The revision lacks consistency and predictability, two key components people need to make their life plans accordingly, he added. Also lacking is a reasonable explanation against the enormous backlash from people whose tax will become heavier by at least hundreds of thousands of won, based on criteria they consider lack logic and highly prone to market fluctuations.

The revision only undermines the overall real estate policy, according to Myongji University real estate professor Kwon Dae-jung.

“A revision of this sort is unheard of, not to mention unconstitutional. What good can come of dividing people into the top 2 percent and the rest?”

The revision has left too much room for administrative discretion over tax policies, Kim said, against Article 59 of the Constitution, which dictates that the base, scope and rate of tax be determined by laws passed by the National Assembly.

“The officially appraised value ― the key determinant in assessing the amount of real estate tax ― is set by the government. Worse yet, the government ministries ― the finance ministry in this case ― reserves the right to revise ordinances at the last minute. These are grounds for the plan to be ruled unconstitutional.”

Homeowners and would-be buyers not being able to make investment choices remains another major problem.

“People seeking to buy or sell homes will be left confused over whether they would be among the top 2 percent every year. Another complaint will be that they would have to still pay the tax even when the prices of their homes fall," he said.

The ruling party's revision seeks to satisfy its voter base, most of which remains enraged by the rapidly diminishing prospects of owning a home and procuring stable living arrangements.

Data from the People's Solidarity for Participatory Democracy released March 3 showed that the medium 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.

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 has led to a growing number of landlords raising rent on their tenants or evicting them.