Property taxes on ultra-luxury homes in Gangnam, Yongsan already at record highs — and set to climb further

Property taxes on high-end apartments in Gangnam and parts of Yongsan-gu have already hit record highs this year — surpassing 2021 levels — even without any rate increases.

With the government expected to include measures to raise taxes on ultra-luxury homes in a tax reform package due out in early August, analysts warn that property tax burdens could rise sharply if the comprehensive real estate tax rate, the fair market value ratio and the public price realization rate all increase at the same time.

A simulation conducted Wednesday by Woo Byung-tak, a senior specialist at Shinhan Premier Pathfinder, covering nine unit types in apartments with a public price above 3 billion won ($2.05 million) across the three Gangnam districts and Yongsan-gu found that five of the nine unit types have already reached all-time high property tax levels this year — with no rate increases applied.

Property taxes based on the June 1 public price have already been assessed, while the comprehensive real estate tax bill is due in December.

The estimated property tax for a single homeowner of an 84-square-meter unit at Banpo Xi in Seocho-gu comes to 18.1 million won this year, excluding deductions for elderly or long-term owners. That is more than 40 percent higher than last year's 12.74 million won and exceeds the previous record of 16.53 million won set in 2021.

In 2021, the public price realization rate stood at 78.3 percent and the fair market value ratio for the comprehensive real estate tax was set at 95 percent, making that year the peak for property tax burdens. This year, the realization rate has fallen to 69 percent and the fair market value ratio has been reduced to 60 percent for the comprehensive real estate tax and 43 to 45 percent for property tax — yet property taxes have hit new highs regardless.

The driver is a sharp rise in public prices following recent gains in apartment values. The public price of Banpo Xi this year stands at 3.49 billion won, up 55.5 percent from 2021.

Record-high property taxes were also recorded this year for units at Banpo Acro River Park — the 84.97-square-meter and 112.96-square-meter types — as well as the 84.93-square-meter unit at Raemian Firstige, the 82.6-square-meter unit at Jamsil Jugong 5 complex and the 235.3-square-meter unit at Hannam The Hill.

Woo noted that although the public price realization rate was frozen this year and the fair market value ratio was lowered to 60 percent, the surge in Seoul apartment prices last year pushed public prices to record levels, resulting in record property tax bills at a significant number of complexes.

The government is reviewing ways to raise the effective property tax rate on ultra-luxury homes to levels comparable to those in advanced economies, aiming to curb the preference for concentrating wealth in a single premium property.

At a major real estate forum chaired by the president on Thursday, proposals were raised to lift the effective property tax rate on ultra-luxury homes to around 1 percent. For a home with a market price of 5 billion won, that would translate to a property tax bill of roughly 50 million won — a two- to threefold increase from current levels for 84-square-meter apartments in the Gangnam area.

The market widely expects a public price of around 3 billion won to serve as the threshold for the ultra-luxury designation. According to the Ministry of Land, Infrastructure and Transport, 50,869 apartment units carry a public price of 3 billion won or more this year, representing 0.32 percent of all apartment units nationwide, of which 99.3 percent are in Seoul. Applying the current average realization rate of 69 percent, apartments with a market price of roughly 4.3 billion won or more would fall within the target range.

Among the tax-increase options under discussion is the creation of a new tax bracket within the comprehensive real estate tax base specifically for ultra-luxury homes, with a higher rate applied to that bracket. Another option under consideration is applying the fair market value ratio on a tiered basis by price range without creating a separate bracket — an approach that could be implemented through a revision to enforcement decrees without requiring National Assembly legislation.

The basic deduction for single homeowners is another variable. The government is reportedly reviewing a plan to raise the current deduction from 1.2 billion won to between 1.3 billion and 1.5 billion won, though it has not yet been decided whether the same increase would apply to ultra-luxury homes.

In the tax industry, there is speculation that the top comprehensive real estate tax rate for ultra-luxury homes could rise above the current maximum of 2.7 percent for single homeowners, potentially reaching the 5.0 percent level that applies to multi-homeowners. Whether deductions for elderly or long-term owners will be reduced is also cited as a key variable affecting future tax burdens.

The cap on annual property tax increases is also drawing attention. The current cap stands at 150 percent, but some in the market expect it could be raised to the 200 to 300 percent range that was applied to multi-homeowners under the Moon Jae-in administration.

The public price realization rate is yet another variable. The government is currently conducting a related research project and plans to announce a new realization roadmap as early as October or November.

The government has set a long-term target of bringing the public price realization rate to 90 percent of market value. If the rate rises, public prices would increase even for homes at the same market value, potentially expanding the pool of properties classified as ultra-luxury. Should the realization rate climb to 80 percent, homes with a market price of 3.75 billion won or more could see their public prices exceed 3 billion won and be reclassified as ultra-luxury.

Experts expect that once the ultra-luxury threshold is set, a "threshold effect" will emerge as owners seek to stay just below the tax cutoff. There are also suggestions that prospective buyers who had been considering Gangnam may shift their attention to the Han River belt areas of Seongdong, Mapo and Gwangjin.