Korea keeps fair market value ratio unchanged to ease property taxes

Raemian Prugio Mapo in western Seoul [Photo by Park Hyung-ki]

The South Korean government unveiled Tuesday a plan to keep the fair market value ratio for the comprehensive holding tax unchanged at 60 percent as it announced the country’s economic policy direction for the second half of this year. The move is expected to ease the real estate holding tax burden on homeowners significantly below the 2020 level.

The Yoon Suk Yeol government has been taking a number of measures to lower the burden of property taxes, which had skyrocketed during the previous Moon Jae-in administration.

Under the measures, the ratio of list price against the market price, which serves as the basis for calculating the comprehensive real estate tax and property tax, has been lowered to the 2020 level.

The tax base for the comprehensive real estate tax is calculated by subtracting the basic deduction amount from the published price and multiplying it by the fair market value ratio.

The basic deduction amount was raised to 1.2 billion won ($925,212) from 1.1 billion won, leading to an exemption of comprehensive real estate taxes for many apartment owners.

The government also lowered the basic tax rate for comprehensive real estate tax, abolished heavy taxation on two property owners, and lowered the heavy tax rate for multi property owners with three or more houses.

The fair market value ratio, which is linked to the property tax base, was also further reduced to 45 percent last year and 43 percent this year from the previous 60 percent.

The government had been considering raising the fair market value ratio amid concerns that property tax revenues will take a plunge as housing prices continued falling. However, it decided to keep the fair market value ratio unchanged as it had pledged since inauguration, to reduce the property tax burden to 2020 levels.

According to a simulation by Woo Byeong-tak, head of the real estate team at WM Consulting Center of Shinhan Bank Co., owners of major apartment complexes in Seoul will pay real estate holding taxes at the level of 2020 this year.

Eunma Apartment in Gangnam, southern Seoul [Photo by Lee Seung-hwan]

A single property owner with an exclusive private area of 84 square meters at Hangaram Apartment in Yongsan, Seoul, will pay an estimated 4.36 million won in holding taxes this year, not much different from 4.25 million won in 2020. However, it is a decline of about 27 percent from last year’s estimated payment of 5.99 million won.

The simulation results show that most of the complexes examined, such as Raemian Prugio Mapo and Raemian Oksu Riverzen with an exclusive area of 84 square meters each, will see holding taxes lowered to below the 2020 level.

A single property owner with an exclusive area of 84 square meters in Helio City, Songpa District, the largest apartment complex in Korea, will also become exempt from comprehensive real estate tax as its list price plunged to 1.11 billion won this year from 1.54 billion won last year.

There will also be a number of cases where the holding tax burden is expected to fall even further to 2019 levels. This year’s estimated holding tax payment for Godeok Raemian Hillstate in Gangdong District with an exclusive area of 84 square meters is 1.81 million won, which is less than 2.37 million won in 2020 and 1.85 million won 2019.

A single property owner with an apartment unit in Jamsil Jugong Apartment Complex 5 with an exclusive area of 82 square meters is expected to pay an estimated 4.39 million in holding taxes this year, which is less than the 4.8 million won paid five years ago in 2018.

Multi property owners, with significantly eased heavy taxation, are expected to see their property tax burden halve or decline even further from last year.

A two-property owner with an exclusive area of 84 square meters each at Raemian Prugio Mapo and Eunma Apartment in Gangnam, southern Seoul paid a total of 53.58 million won in holding taxes last year, but will only have to pay about 15.26 million won this year.

“Relaxation of comprehensive real estate tax was needed to normalize the market,” said Lee Eun-hyung, a research fellow at the Korea Research Institute for Construction Policy.