South Korean Tax Reform Faces Expert Criticism Over Rental Housing Supply Concerns

South Korean tax authorities face mounting criticism over a government tax reform plan targeting ultra-high-value and non-residential properties, with experts warning of rental housing shortages and increased complexity. The Korean Fiscal Association held a meeting at the Korea Chamber of Commerce and Industry in Seoul on the previous day to evaluate the reforms, which simultaneously strengthen comprehensive real estate tax and capital gains tax on properties valued over 40 billion won and non-residential homes. Experts questioned the government's stated goals of fair taxation and tax normalization, while raising concerns that the reforms could reduce rental housing supply and create cascading effects across the broader property market.

Korean Fiscal Association Experts Question Fair Taxation Goals at Seoul Meeting

At the Korean Fiscal Association meeting, experts challenged the government's justification for the tax reforms. Shim Hye-jung, former Tax Analysis and Deliberation Officer at the National Assembly Budget Office, stated: "The government presents fair taxation, but it needs to clarify what level of property tax is fair. It is necessary to make clear whether the policy purpose is income and wealth redistribution, or whether it includes real estate price stability."

Kim Woo-chul, President of the Korean Fiscal Association and Professor of Tax Accounting at University of Seoul, criticized the reform process: "The government advocates fair taxation, but I don't understand well what it wants to achieve through this. Somewhat unreasonable provisions are included, and there was no sufficient social consensus." Kim also questioned whether the increased tax burden on ultra-high-value homes over 40 billion won represents "a kind of wealth tax."

Experts Warn Tax Reforms May Reduce Rental Housing Supply for 45% of Population

Sung Myung-jae, Professor of Economics at Hongik University, warned that the reforms could create rental housing shortages: "If the owner-occupied residence rate is about 55%, the remaining 45% means they are living in homes owned by others. If we induce all homes to be held only for owner-occupancy purposes, there may be a shortage of rental housing to supply to people who do not own homes."

Sung explained the rationale behind existing long-term holding deductions: "The reason for allowing long-term holding special deductions was also to induce landlords to supply monthly rent homes for a long period even if they don't live there directly. If we eliminate deductions based on holding and only favor actual residence, we can protect owner-occupiers, but rental housing supply may decrease and side effects may return to tenants."

Jung Da-woon, Research Fellow at the Korea Institute of Public Finance, analyzed potential chain reactions: "If non-residential single-home owners try to live in their own homes to avoid the tax burden, existing tenants must move out. Due to such chain reactions, the jeonse market and housing prices under 20 billion won will inevitably be affected."

Korean Tax Accountants Association Flags Compliance Cost Surge from Phased Implementation

The Korean Tax Accountants Association raised concerns about increased complexity in a statement: "This reform plan has a structure where core tax systems such as comprehensive real estate tax rates, fair market value ratios, and long-term holding special deductions are not implemented at once but are applied step by step over 2027 and 2028. Not only ordinary citizens but even tax professionals face exploding risks such as under-reporting or errors and tax compliance costs in complying and paying taxes."

Professor Sung also questioned the effectiveness of property tax increases for price stabilization: "Raising property tax burdens can adjust housing prices on a one-time basis, but cannot prevent future price increases themselves. The fundamental cause of housing price increases lies in supply shortages, and it is difficult to achieve effects if we try to reduce only demand through taxes without supply measures."

Ministry of Finance and Economy Defends Reforms as Protecting Single-Home Residents

The Ministry of Finance and Economy has repeatedly emphasized that the tax reforms protect single residential homes while normalizing excessive tax benefits. A ministry official stated: "The government is expanding public rental supply to stabilize the monthly rent market and continues to promote measures to ease housing cost burdens for young people. We are also doing our utmost to expand housing supply for fundamental market stability."

However, negative public opinion continues since the reform announcement on the 3rd. Concerns have spread particularly among younger generations in their 20s and 30s that rental supply will decrease and rental costs will increase, while older generations with relatively weaker income capacity worry about the reality of increased tax burdens from strengthened property taxes.

Yonhap News file photo

Yonhap News file photo

FAQ

What tax changes did the South Korean government announce for high-value properties?

The government announced simultaneous strengthening of comprehensive real estate tax and capital gains tax on ultra-high-value properties over 40 billion won and non-residential homes. The reforms will be implemented in phases over 2027 and 2028, with changes to tax rates, fair market value ratios, and long-term holding special deductions.

Why do experts warn the tax reforms may reduce rental housing supply?

Experts note that approximately 45% of South Korea's population lives in homes owned by others. Professor Sung Myung-jae of Hongik University explained that eliminating long-term holding deductions and favoring only actual residence may cause landlords to stop providing rental properties, creating shortages for the 45% who do not own homes. Jung Da-woon of the Korea Institute of Public Finance added that non-residential single-home owners may evict existing tenants to avoid tax burdens, creating chain reactions affecting the broader rental market.

What concerns did the Korean Tax Accountants Association raise about the reforms?

The Korean Tax Accountants Association warned that the phased implementation structure over 2027 and 2028 creates significant complexity, with core tax provisions applied step by step rather than at once. The association stated this structure causes "exploding risks such as under-reporting or errors and tax compliance costs" for both ordinary citizens and tax professionals.