Government moves to raise taxes on ultra-expensive, non-owner-occupied homes

The government has begun overhauling the real estate tax system, targeting ultra-expensive homes and properties whose owners do not live in them.

Under the leading options being considered, the comprehensive real estate holding tax — known as jongbusae — would be tightened to discourage ownership of high-value homes for non-residential purposes, while the special long-term deduction on capital gains tax would be redesigned around residency requirements, with the aim of curbing speculative demand.

According to officials familiar with the matter, the Ministry of Economy and Finance recently received an interim report from a research project on rationalizing the tax system to stabilize the housing market and is now drawing up a reform package focused on the holding tax and capital gains tax.

The government plans to raise the tax burden on ultra-expensive and non-owner-occupied homes while maintaining protections for genuine end-users.

The centerpiece of the holding tax reform is strengthening taxation on ultra-expensive properties. Under the current system, a single-home owner who has held the property for five or more years can receive a deduction of up to 50% based on the holding period, and owners aged 60 or older can receive an additional deduction of up to 40% based on age — allowing combined deductions of as much as 80%. These deductions apply regardless of whether the owner actually lives in the property, a feature critics say disproportionately benefits owners of high-value homes.

The government is examining a combination of factors — including the publicly assessed price threshold, the basic deduction, the fair market value ratio, tax rates and tax credits — to calibrate the final tax burden.

Also drawing attention is the current exemption for single-home owners whose property is assessed at 1.2 billion won ($798,000) or below. As rising home prices push more properties into the taxable range, the question of where the government will set the threshold for higher tax burdens is under close watch.

The capital gains tax is also set to be restructured around residency. Currently, a single-home owner who has held a property for three or more years can claim a special long-term deduction of 12 to 40% based on the holding period alone, even without living there. Owners who have resided in the property for two or more years can claim additional deductions, up to a maximum of 80%.

The government believes that applying high deduction rates to properties held long-term without owner occupancy can fuel speculative demand. It is considering reducing or eliminating the holding-period deduction while expanding the weight given to the residency deduction. Some within the government have also floated the idea of effectively converting the special long-term deduction into a "long-term residency deduction."

In addition, the government is reviewing a plan to progressively increase the capital gains tax burden on non-owner-occupied homes the longer they are held, in order to encourage sales. At the same time, it intends to put in place separate safeguards to prevent a sharp rise in the tax burden on mid- to low-priced owner-occupied homes.

To minimize market disruption from the tax overhaul, the government is also considering a phased rollout of the new rules. The approach reflects concern that simultaneous cuts to deductions and adjustments to tax rates could cause significant market turbulence.

Presidential policy chief Kim Yong-beom said at a briefing Friday that the government is "reviewing rational improvement measures for the overall real estate tax system, including holding taxes and transaction taxes, based on research and overseas cases."

The Ministry of Land, Infrastructure and Transport, the Financial Services Commission and the Ministry of Economy and Finance will each hold separate public forums from Tuesday through Thursday to gather input from experts and stakeholders. The government plans to announce the final real estate tax reform package on July 23, following a presidential debate forum.