Another raft of property measures proposed by government

The government is lobbying to waive the capital gains tax for owners who limit the increase in the jeonse price to five percent. This complete exemption, if passed, will be effective until end of 2024.

Offers posted on a real estate agency in Seoul on Tuesday. The government announced measures that would encourage landlords to refrain from raising rents as part of its real estate stabilization plan. [YONHAP]

The government has proposed a number of legislative and administrative changes aimed at the property market.

Proposals that involve a change in tax rates will require legislative approval, while some administrative adjustments can be made unilaterally.

The package, which at this point is more or less a wish list, includes tax adjustments, changes in rules for loan guarantees and various exemptions.

It comes ahead of possible increases in jeonse prices in August, as two years will have passed since owners were required to keep prices steady for two years for many tenants.

"As jeonse contracts already increased 5 percent or less are coming to an end, according to the legislation that passed two years ago, and with the moving seasons in fall, prices are expected to increase," said Choo Kyung-ho, Finance Minister, on Tuesday. "Through taxes, financial aid and expanding supply, the government plans to take preemptive measures against anxious lease markets."

Under current regulations, a landlord that has rented out an apartment for a minimum of two years will get a capital gains tax exemption if the owner has occupied the property for a year.

This exemption only applies to owners of a single property valued at under 1.2 billion won. It is applied to areas that have been designated by the government as overheated in price, which in the case of Seoul is every district.

The government is lobbying to waive the capital gains tax for owners who limit the increase in the jeonse price to five percent. This complete exemption, if passed, will be effective until the end of 2024.

An exemption was initially adopted under the Moon Jae-in government in 2020 under the condition that the owner occupies the unit for two years. This requirement was lowered to a year at the beginning of 2022.

Also proposed is relaxing regulations so that all first time homebuyers will be able to get a reduction in their acquisition tax.

Under the current regulation, those who purchased an apartment at 400 million won or less in the greater Seoul area and 300 million won in other places are able to get a 50 percent cut in their acquisition tax. The minimum rate on an apartment whose value is less than 600 million won is 1.1 percent.

To get this 50 percent cut, the homebuyer had to meet several conditions, including a combined annual income of the family members less than 70 million won.

The Yoon government plans to lift the limit on the value of the apartment as well as the income conditions for the 50 percent cut on the acquisition tax.

Some of the measures targeting tenants including raising the maximum tax deduction on monthly rents from 12 percent to 15 percent. The maximum limit on the income tax deduction on repaying jeonse loans will be raised from 3 million won to 4 million won.

Government-backed jeonse loan guarantees for low-income households will be raised from 300 million won to 450 million won for apartments located in the greater Seoul area.

This is not the first real estate stabilization measure that the government has announced.

A week ago, the Yoon Suk-yeol government laid out proposals to only use 60 percent of assessed value in calculating the comprehensive real estate holding tax instead of the full value.

The comprehensive real estate holding tax, which was first adopted in 2005, is a tax on properties with assessed value of 1.1 billion won or above. This bar has been raised from 900 million won last year.

The Finance Minister said the government will be working on reforming three tenant protection laws passed two years ago.

“We will try to work on coming up with an improvement plan that is rational that would minimize confusion in the market while contributing to stabilizing the housing situation for tenants,” Choo said.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]