Real Estate Plan Would Boost Tax on Elderly Households

Analysis indicates that the “August 31 Comprehensive Real Estate Plan” would increase the possession tax imposed on elderly households by 2.2 times.

The National Assembly Budget Office report: “Analysis on the Increased Possession Tax’s Impact on Elderly Household’s Consumption and Real Estate Price,” sent to Uri Party congressman Shin Hak-yong on September 26, shows that possession tax on elderly households with members over 60 years of age is expected to rise from the current 179,000 won to 397,000 won on average from next year.

The statistics came from the comparison of the current possession tax level and the revised level of the 1,118 elderly household samples nationwide

Also, the August 31 plan expanded the scale of housing that came under the comprehensive real estate taxation plan because the subject housing standard price is changed from the current over 900 million won to over 600 million won. Besides, the standard of assessment, used as the standard for taxation, will rise from the current level of 50 percent of the standard price to 100 percent by 2009.

According to the report, a study conducted on 10 groups of elderly households categorized according to their possession tax liability shows that the upper 10 percent who currently pay 535,000 won will have to pay 1,070,000 won. The upper one percent’s possession tax will increase from the current 1,700,000 won to 4,200,000 won, 2.5 times more.

Therefore, under the plan, the elderly are expected to have less money to spend.

The upper 50 percent, the middle class, will have to additionally pay 0.4 percent (33,000 won) of their annual living expenses (approximately 8,400,000 won) for possession tax. The wealthier they are, the higher the ratio is, with the upper 10 percent paying 2.4 percent, the upper five percent paying 2.8 percent, and upper one percent paying 6.1 percent more possession taxes.

“It is possible that consumption by elderly could be drastically reduced, since their assets consist of a relatively large amount of real estate,” said Kim Hyun-a, a researcher of the Korea Institute of Public Finance.

Kim also expected that the increase in possession taxes would lead to a larger price drop of small size apartments than that of the medium- or large-scale apartments.

During the period between September 2003 and July 2004, before and after the release of the October 29 real estate plan, the Gangbuk, Nowon and Dobong-gu areas with relatively cheap housing prices showed price drops of 0.1 to 2.5 percent. On the other hand, Gangnam’s apartment prices increased 16.8 to 23.4 percent.

Congressman Shin expressed concern, pointing out that ordinary people could potentially fall victim to asset deflation.

legman@donga.com