"Freeze Assessed Value of Real Estate" Seoul Mayor Promotes Tax Cuts for the Rich

[경향신문]

Seoul Mayor Oh Se-hoon (pictured) demanded the government to “freeze the assessed value of real estate” shortly after his election victory, forcing the government to face an obstacle the very year it announced plans to adjust the assessed value of real estate to better reflect the market value last November. Other metropolitan and provincial offices, such as Jeju and Busan, which also opposed raising the assessed value of property, are expected to join Seoul, and the issue is expected to trigger a heated debate ahead of the presidential election next year. If the government assessed value of real estate is frozen, the rich who own a lot of real estate, will enjoy tax cuts, so Oh’s demand also drew attacks for practically granting tax cuts for the rich.

On April 13, an official from the Seoul metropolitan government said, “We are preparing to conduct another survey of the assessed value of property,” and added, “We will respond to the problem of assessed value together with the metropolitan and provincial governments that share our views.” On April 10, Mayor Oh pointed out that the government assessed value increased too drastically this year and said, “If another assessment is necessary, we will conduct another assessment and provide the grounds for why we need to freeze the assessed value of property.” On April 11, Won Hee-ryong, governor of Jeju wrote on Facebook, “We have decided to verify the assessed value of real estate and correct the real estate policies along with the mayor of Seoul.” On April 12, Park Hyung-joon, mayor of Busan also announced that he would review the assessed value of real estate in Suyeong-gu, Haeundae-gu, and Dongrae-gu and demand further investigation and policy improvements if any problems are detected. The assessed value of real estate is likely to remain in the spotlight as a major issue in real estate policies until the presidential election next year.

According to this year’s assessed value of apartments (draft) released by the Ministry of Land, Infrastructure and Transport, the number of apartments valued at over 900 million won, subject to the comprehensive real estate tax, was 525,000, approximately 3.7% of all apartments. Among them 78.6% or 415,000 units were concentrated in Seoul. The mayor publicly opposed raising the assessed value of real estate in Seoul, which lies at the center of the debate on assessed value, interfering with the government’s plans to adjust the assessed value and better reflect actual prices in the first year of implementation. The government had announced that it would gradually raise the assessed value, which is currently at 69% of the market value (as of 2020), to 90% of the market value by 2030.

If the assessed value of property is frozen according to Oh’s request, the rich who own more real estate, will actually benefit from tax cuts. In Seoul, 70.6% of all homes or 1.8 million households are expected to be valued at 600 million won or less in this year’s assessment. These households are subject to a special property tax cut, so their holding taxes (property tax + comprehensive real estate tax) will decrease from last year, meaning they will not be affected by the freezing of assessed value.

The real effects will be felt by owners of homes that are valued at over 900 million won, which are subject to the comprehensive real estate tax (16% in Seoul). If an apartment that was assessed at 960 million won last year (market value 1.3 billion won) is assessed at 1.2 billion won (market value 1.7 billion won) this year, the owner has to pay over 2 million won more in holding taxes, but if the assessed value of the property is frozen, the additional tax payment will not be necessary. In the same way, if the assessed value of an apartment previously valued at 2.7 billion won and scheduled to increase to 3 billion won is frozen, the owner will be exempt from over 9 million won in taxes. Owners of expensive luxury homes with assessed values of over 5 billion won and owners of multiple homes can enjoy holding tax cuts up to tens of millions of won if the assessed value of their property is frozen.

Since the direct effects of freezing the assessed value will be concentrated on a certain class of people, experts argue that the latest demand is the same as a tax cut for the rich. Jeong Se-eun, an economics professor at Chungnam National University said, “The assessed value of property was raised relatively higher in some areas where housing prices showed a steep climb,” and added, “The top 10% of people in terms of assets owned will have to shoulder the relevant tax burden, but Mayor Oh is representing them.”

Other experts argued that the latest demand goes against Mayor Oh’s campaign pledge to “stabilize the real estate market in Seoul.” Nam Gi-eop, director of the Institute of Land and Liberty said, “Freezing the assessed value lowers the effective real estate tax rate and increases the expected rate of return on real estate. Ultimately, real estate prices will rise even more.”