Prices Send Real Estate Taxes Higher

Taxes will increase significantly for those who own land in Seoul and adjacent areas such as Incheon, as well as owners of land in areas that will undergo massive scale projects such as Chungnam Province. This is because official land prices have jumped quite significantly this year, and the criteria for comprehensive real estate taxation have been strengthened. Accordingly, it is predicted that the land market, in which signs of price decline are quite visible, will be further constricted.

Price of Land Planned for Major Projects Rises Drastically—

Official land prices have risen drastically in areas that will be developed such as the sites where the multifunctional administrative city or new cities will be built.

This year, Yeongi-gun, Chungnam Province, the home of the new administrative city, had the highest rate of land price hike with the prices going up by 74.57 percent. In just a year, farm and forest lands in Shinjeong-ri, Yeongi-gun, increased from 32,760 won per pyeong to 57,190 won, while land worth 57,000 won per pyeong in Hapgang-ri jumped to 99,935 won. Gongju City, which will be partially part of the administrative city, saw a price surge of 45.88 percent, ranking third.

Yangpyeong-gun had the second highest increase rate at 61.23 percent, which is attributed to the construction of a subway station that will link with the Central Line as well as the scheduled opening of a highway linking Seoul and Chuncheon in 2009.

Incheon City’s Yeonsu-gu where Songdo New Town is being built ranked fourth with a 42.27 percent increase, and Bundang-gu near Pangyo New Town followed in fifth place with 40.54 percent.

Official land prices in Seoul, where real estate prices have been increasing steeply since last year, have increased by 20.15 percent. In residential areas in Gangnam District Cheongdam-dong, prices rose from 11.9 million won per pyeong to 15.2 million, or a 27.73 percent rise.

Land Market Slumping Due to Sharp Upsurge of Taxes—

Individual households possessing non-commercial land worth a total of less than 300 million won only pay property taxes, but if the total amount of land surpasses 300 million won, the owners also have to pay comprehensive real estate tax. The criterion for levying comprehensive real estate tax was 600 million last year, but it has been lowered this year.

Furthermore, last year, comprehensive tax was only levied on 50 percent of the official land price, but this year it has increased to 70 percent, augmenting the tax burden.

In the case of 102-pyeong land in Seongbuk-dong, Seoul, whose official land price rose from 454.95 million won to 529.09 this year, it became subject of comprehensive tax this year. Therefore, last year, the owner only paid 1,064,840 won in property taxes, but this year the owner will have to pay 1,445,980 won in property taxes and 1,168,360 won in comprehensive taxes, or a total of 2,614,340 won. In other words, taxes for owning the same land increased by 2.5-fold in just a year.

The price of a 375-pyeong piece of land adjacent to a commercial building in Jeongja-dong, Seongnam City, jumped from 7.452 billion won last year to 10.4949 billion won this year. Accordingly, the sum of property and comprehensive taxes rose by 150 percent, from about 20 million won to almost 31 million won.

As for commercial land in areas ordained as speculation zones, until the end of this year, owners will only pay capital gain taxes based on official land prices, but starting next year, taxation will be based on the actual transaction price.

In addition, since 2007, non-resident owners, people who actually don’t live in the vicinity of the land they own, of farmland and other non-commercial land will have to pay 60 percent capital gains taxes. That is why real estate experts are advising to sell unnecessary non-commercial real estate within this year.

Lim Dal-ho, the president of Hyeondo Consulting Firm, a real estate company, commented, “Official land prices have greatly increased because they reflected last year’s land price rise, but this year, the land prices are already heading downwards. If the tax burden is increased, land prices will drop furthermore, and the real estate market will get into deeper slump.”

Objections Will be Accepted for a Period of One Month—

The individual official land prices announced this time will be directly notified to the land owner through mayors or local office heads. One can also verify the prices through the website of local autonomous authorities.

Owners who have an immense tax burden because official land prices rose too steeply, or will suffer losses because the land price was lowered too much, can file objections to offices during the month of June.

The form of objection can be downloaded at the concerned local authorities’ websites, and one needs to send them until June 30 by mail. The head of the local autonomous body will submit the petitions to land price appraisers, who will check the facts, and declare the final results on July 31.

Joong-Hyun Park sanjuck@donga.com imsoo@donga.com