"Comprehensive Real Estate Tax Should Be Based on Value, Not Number of Homes; Tax Credits Should Be Based on Residency"

▲ Koo Yun-cheol, Deputy Prime Minister and Minister of Finance and Economy, speaks at the 'Public Opinion Hearing on Real Estate Taxation' held at the Korea Federation of Banks in Myeong-dong, Seoul, on the 16th.

Experts have suggested that the criteria for imposing the Comprehensive Real Estate Tax (CRIT), which currently centers on the number of homes owned, should be shifted to the value of the properties.

There were also arguments that the CRIT tax credit for single-home households, currently designed based on age and length of ownership, should be changed to be based on residency.

The Ministry of Finance and Economy held a discussion on real estate-related taxation at the Korea Federation of Banks in Jung-gu, Seoul, today (the 16th), with Deputy Prime Minister and Minister of Finance and Economy Koo Yun-cheol in attendance.

While there was a general consensus on the need to strengthen property-related taxes, including the CRIT, opinions varied regarding the speed and intensity of such measures.

Nam Ki-yeop, head of the Land Transaction Freedom Institute, pointed out, "A chronic problem with our property taxes is that the effective tax rate is one-third to one-fifth of that in advanced countries. Strengthening them in the long term cannot be called punitive taxation," adding, "Not only the CRIT but also property taxes should be increased in parallel."

He stated, "A universal strengthening of property taxes is bitter to the taste, but it has very positive effects on the national economy."

On the other hand, Ham Young-jin, head of the Woori Bank Real Estate Research Lab, argued for a limited increase, saying, "If real estate taxation is strengthened too rapidly beyond market acceptance, it could lead to problems such as a lock-in effect on properties, reduced transaction volume, market rigidity, and the shifting of tax burdens onto tenants through monthly rent due to a shortage of rental listings."

He continued, "It seems desirable to raise the official market value ratio to about 60 percent for property taxes and 80 percent for the CRIT."

Most participants argued that it is correct to unify the CRIT assessment criteria based on 'value' rather than the current 'number of homes.'

Oh Jong-hyun, a division head at the Korea Institute of Public Finance, pointed out, "If we use the value of the home as the criterion, even ultra-high-priced single homes will be covered within that value. If we add progressive taxation and caps on deductions for primary residences, the issue of ultra-high-priced single homes can also be resolved."

Ham Young-jin of the Woori Bank Real Estate Research Lab stated, "It is appropriate to impose the CRIT based on the size of the officially assessed price, which is the value, rather than the number of homes."

Shim Choong-jin, a professor at Konkuk University, also said, "It is reasonable to shift to a value-based standard to strengthen the redistribution function of the CRIT."

The threshold for ultra-high-priced single homes, often referred to as 'smart single homes,' was also a point of contention.

Professor Shim Choong-jin agreed that the tax burden on ultra-high-priced homes is low, stating, "Considering the market price of 5 billion won and the realization rate of the officially assessed price, it is about 3.5 billion won. I suggest that for amounts above this, the deduction application rate should be reduced by 10 percentage points to help with tax equity, and I propose that the deduction rate be capped at a maximum of 50 percent."

Lee Kwang-soo, CEO of the YouTube channel 'Gwangsu's Real Estate,' advocated for 'tweezers taxation,' arguing that "the effective tax rate should be significantly increased only for ultra-high-priced homes," and suggested a threshold of 4 billion won.

However, he added, "We need to think about why it should be 4 billion won. It needs to be established through public discussion and consensus."

Arguments were also made to revise the CRIT deduction for single-home households, which is currently designed based on age and long-term ownership, to focus on actual residency.

Professor Shim Choong-jin of Konkuk University suggested, "Since ownership can encourage speculation, it should be replaced by the period of actual residency. A 10 percent deduction for living in a home for more than 5 years, and adding 10 percentage points for every 5 years thereafter, up to a maximum of 40 percent for living there for more than 20 years."

Ham Young-jin also stated, "The tax credit for single-home households, which provides up to 80 percent, should be changed from an ownership-based deduction to a residency-based deduction, applying the CRIT deduction rate to actual residents."

Conversely, Professor Jin Chang-ha of Hanyang University argued that South Korea's property and transaction taxes are not low compared to its Gross Domestic Product (GDP), and suggested balanced regional development and supply as the solution.

He stated, "The housing supply per 1,000 people is 509 in Germany, while the average in Korea is 442, and 407 in the metropolitan area," adding, "Even if we concentrate supply in the metropolitan area, demand continues to flock there, so the '5-pole, 3-special' strategy is the mid-to-long-term solution, and in the meantime, we must provide breathing room by increasing supply in parallel."

In the subsequent discussion on capital gains tax, the special deduction for long-term ownership was a major issue.

The panelists generally agreed that the system should be redesigned from the current focus on ownership to a focus on residency.

Deputy Prime Minister Koo noted, "Real estate is fundamentally a 'place to live,' but it is difficult to say that government policies have lacked support for 'living' in the past," and asked, "While we respect the public's decision-making to own multiple homes beyond just a place to live, is it desirable for policy to support that?"

He emphasized, "Today, I will keep my mouth shut, open my ears wide, and truly listen to the voices of the people," adding, "I will reflect various opinions in the final decision."

(Photo: Yonhap News)

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