Titles to Houses under Redevelopment or Reconstruction to be Recognized as Homes from 2006

Starting 2006, the title to an apartment under redevelopment or reconstruction will also be considered as a house, when defining an owner of multiple homes.

Under the current law, owning one apartment and one such title is considered as possessing only one home per household, but from next year the same person will be classified as an owner of two homes, and thus subject to paying capital gains tax at the fair market value.

As a result, concerns have been voiced that the Gangnam redevelopment or the Gangbuk new town projects may not be able to proceed smoothly. In recent years, redeveloped or reconstructed housing comprise 57~79 percent of all apartments newly available in Seoul.

In addition, a legal dispute is likely to arise over whether the title to a housing which does not actually exist in material form can be considered as a house.

The Ministry of Finance and Economy (MOFE) announced on September 6 its plan to enact a revised income tax law which recognizes holding the title to a house under redevelopment or reconstruction as owning an actual house.

Kim Yong-min, director-general of the ministry`s tax and customs office, stated, “The act will mean that an owner of three homes will still be regarded as such, even if one home is being redeveloped or reconstructed, and thus will be subject to a rate of 60 percent in capital gains tax when selling a house.”

Tax exemption benefits granted to single home owners will no longer be available for owners of two homes even in the case that one of the two is torn down and replaced by a title to a newly constructed one, because the title and the house will be recognized as two homes.

But selling such titles will still be levied taxes at the current rate of 9~36 percent and of 50 percent if held for less than a year.

Ki-Jeong Ko Jae-Seong Hwang koh@donga.com jsonhng@donga.com