Experts call for value-based property tax, residency-focused deductions at real estate forum

As the government prepares to overhaul its real estate tax system, experts at a public forum Thursday called for shifting the comprehensive real estate holding tax — known as jongbusae — from a unit-count basis to a value-based standard, and for redesigning the long-term holding special deduction on capital gains tax around actual residency rather than length of ownership.

The Ministry of Economy and Finance held the forum Thursday at the Bankers Club in Jung-gu, Seoul, to gather public input on proposed changes to property holding and capital gains taxes.

About 60 people attended the forum, including Deputy Prime Minister and Finance Minister Koo Yun-cheol, academics, tax experts, representatives from the construction industry and related associations, and members of the general public.

Koo said housing is fundamentally "a place to live," but that some people have begun treating it like a commodity to be bought and sold. "We respect people's personal decisions to own multiple homes beyond the one they live in," he said, "but the question is whether it is truly desirable for the government to actively support such behavior through policy or subsidies."

He added that the government should do everything it can to help people with their primary residence and significantly expand housing supply and financial support so that those without a home face no barriers to obtaining one. He also acknowledged that past government policy had not been entirely free of measures that benefited investment-driven housing demand.

The forum produced broad agreement that property holding taxes, including the jongbusae, should be strengthened, though participants differed sharply on how far and how fast to go.

Nam Ki-eop, director of the Land Free Trade Institute, said the chronic problem with South Korea's property holding taxes is that the effective tax rate is only one-third to one-fifth of the level seen in advanced economies. "Strengthening them over the long term cannot be called punitive taxation," he said, adding that property taxes should be raised alongside the jongbusae, not just the jongbusae alone.

"A universal strengthening of holding taxes may be a bitter pill, but it would have a very positive effect on the national economy," he said.

Ham Young-jin, head of the real estate research lab at Woori Bank, took a more cautious position, warning that a rapid tightening of real estate taxes beyond what the market can absorb could trigger a supply freeze, a drop in transaction volumes, market rigidity and a shortage of jeonse and monthly rent listings — ultimately shifting the tax burden onto tenants through higher rents. He favored a limited increase.

Ham proposed raising the fair market value ratio, suggesting 60 percent for property tax and 80 percent for the jongbusae.

Many participants also called for unifying the jongbusae assessment standard around property value rather than the number of units owned.

Oh Jong-hyun, a senior official at the Korea Institute of Public Finance and Taxation, said that if ultra-high-value single homes are assessed on a value basis, they would naturally fall within the taxable range. "If progressive taxation and a cap on the primary-residence deduction are applied on top of that, the issue of ultra-high-value single homes can be resolved," he said.

Participants offered varying views on where to draw the threshold for ultra-high-value homes. Lee Gwang-su, head of the real estate consultancy Gwangsu's Bokdeokbang, argued for a targeted tax increase applied only to ultra-high-value properties and proposed setting the threshold at 4 billion won ($2.69 million). He cautioned, however, that the figure needs further deliberation. "We need to think carefully about why 4 billion won," he said. "The threshold should be established through public debate and consensus."

Professor Shim Chung-jin said he agrees that the tax burden on ultra-high-value homes is too low. He proposed that for homes with a market value of 5 billion won — roughly 3.5 billion won after applying the assessed value ratio — the deduction rate should be reduced by 10 percentage points for each tier above that level, with the maximum deduction capped at 50 percent, to improve tax equity.

Participants also called for revamping the jongbusae tax credit for single-home households, shifting it away from age and length of ownership toward actual residency.

Professor Shim said basing the credit on ownership alone can encourage speculation, and proposed replacing it with a residency-based system: a 10 percent deduction for those who have lived in their home for at least five years, rising by 10 percentage points for every additional five years, up to a maximum of 40 percent for those who have lived there 20 years or more.

Ham also said the current tax credit of up to 80 percent for single-home households — based on ownership — should be converted to a residency-based credit tied to actual time spent living in the property.

In the capital gains tax discussion, reform of the long-term holding special deduction emerged as the central issue. Participants broadly agreed that the current ownership-period-based deduction should be replaced with one centered on actual residency.

Professor Shim argued that the existing deduction of up to 40 percent for simply holding a property has had the side effect of fueling speculative housing demand. "The ownership-period deduction should be abolished and replaced with a residency-based long-term holding deduction," he said, adding that the deduction should apply only to those who have lived in the property for at least 10 years.

Oh agreed, saying that because capital gains tax is a tax on capital gains rather than a transaction tax, it should follow capital gains taxation principles. "For single-home households who actually live in their homes, the capital gains tax burden should be eliminated to protect freedom of movement," he said, "but capital gains from investment properties where the owner does not reside should be taxed according to that principle."

He added, however, that there is a question over whether freedom of movement should be guaranteed even for high-value homes. "It would be good to have a mechanism that sets a cap and controls for that," he said.

Various proposals were also put forward on how to tax multi-home owners. Professor Shim suggested introducing a system of cumulative aggregate taxation on housing capital gains over a fixed period — 10 or 15 years — saying it could ease the supply freeze and improve tax equity at the same time.

Lee argued that multi-home owners should be taxed differently from single-home households, with fewer exemptions, to address fairness concerns. He also proposed offering incentives to existing multi-home owners who sell within three years, saying this could significantly increase market supply and help stabilize prices.

Lee added that the capital gains tax exemption for single-home households could be made more generous, but should be available only once in a lifetime. "The fact that Koreans in their 70s and 80s keep buying apartments shows there is investment-driven demand," he said.

Some participants argued for adjusting capital gains taxes instead of raising holding taxes. Ham said that after the capital gains tax surcharge was introduced in Seoul, the number of listings fell from about 80,000 units to 60,000, and jeonse and monthly rent listings dropped 14 percent from the same period the previous year. "If holding taxes are raised, the transaction tax burden should be eased in tandem — for instance, by partially lowering the capital gains tax rate for multi-home owners in regulated areas," he said.

Moon Yun-sang, a research fellow at the Korea Development Institute, said real estate taxation should be centered on holding taxes, and that capital gains taxes distort the market through a lock-in effect.

Moon proposed linking the long-term holding special deduction to holding taxes rather than applying a flat rate. "If holding taxes go up, there would be an expectation that capital gains taxes could be reduced, which should ease tax resistance to some degree," he said.

Thursday's forum concluded the series of ministry-level public real estate forums that began July 14. The government plans to hold a major open forum chaired by President Lee Jae Myung on Thursday, drawing on input gathered across the supply, finance and taxation sessions to discuss overall policy direction. A finalized tax reform plan is expected to be announced as early as the end of this month.