No Tax Relief for 7 Seoul Districts

If one owns a house in any of the seven areas that the government has designated as a “bubble” area in Seoul, even if real estate prices fall next year, they must pay more property taxes than this year.

The reason is that the tax base for property taxes will increase next year.

If one sells a 30-something pyeong house in one of the bubble seven areas this year to avoid the tax, they must pay capital gains tax at an average of one hundred million won.

Following the March 30 Real Estate Plan, real estate transactions in the bubble seven area fell by about 23%.

Dong-A Ilbo, with the aid of local government organizations and tax experts, analyzed the tax system and real estate transactions of seven apartment districts in Gangnam, Seocho, Songpa, Yangcheon (Mokdong), Bundang in Seongnam, Yongin, and Pyeongchon in Anyang.

This analysis was based on the assumption that the owner bought their apartment in 2003, and that prices either fell by the average fall rate of 1.9% from 1991 to 1998 when prices fell greatly, or rose by the average growth rate of 11.7% from 1999 to 2006.

According to the analysis, even if real estate prices fell next year, homeowners in the bubble areas must pay on average 2.233 million won of comprehensive property tax (CPT) and property tax added together. This is almost twice as much as this year’s average property tax of 1.138 million won.

The tax base for houses that are levied CPT next year, the official price will be 80% of the public price, up 10% from this year, and the public price will be gradually realized as the official price.

The tax base will be increased every year until 2009 so even if the real estate prices fall, the property tax can increase.

If real estate prices increase 11.7% next year, the average growth rate during the recent property price hike, the average property tax in bubble areas will increase 2.5-fold from this year to 2.859 million won.

The government says to sell houses if the property tax is a burden. But when a homeowner who is not exempt from capital gains tax sells his house this year, he must pay an average of 100.215 million won in capital gains tax.

When homeowners try to sell their houses due to the property tax burden but cannot sell because of the capital gains tax, they are in a tight spot. This dilemma is reflected in the decreasing number of real estate transactions.

Since the March 30 anti-speculation measures, homeowners are not willing to sell because of the heavy tax burdens, and people looking to buy are waiting for real estate prices to fall, so real estate deals are faltering.

Professor Lim Ju-yeong of economics at University of Seoul said, “Taxes are too high to buy and sell real estate. To control rising real estate prices, property taxes should be lowered so that there will be more supply.”

legman@donga.com