Recent Controversy over the Comprehensive Real Estate Tax Law Amendment and Immediate Response Tasks

1. Comparison of the Key Provisions of the Government and Democratic Party Amendments to the Comprehensive Real Estate Holding Tax Act

The National Assembly is currently engaged in final negotiations between the ruling and opposition parties over budget-related bills, including the so-called three major tax law amendments—the Comprehensive Real Estate Holding Tax (hereinafter “CREHT”), corporate tax, and income tax. As of now, the statutory deadline for passing the 2023 budget bill (December 2) has already passed by more than six days.

Among these, the CREHT—introduced under the Roh Moo-hyun administration in October 2003 and first imposed in 2005—has generated persistent controversy over the past 17 years. Following repeated failures in housing policy under the Moon Jae-in administration, excessive CREHT burdens driven by rising officially assessed housing prices, combined with a downturn in the real estate market, have intensified public demand for tax relief.

In response, the government submitted a partial amendment to the CREHT Act (Bill No. 17158) to the National Assembly’s Strategy and Finance Committee on September 1, where it is currently under review. The key provisions of the government’s amendment are as follows:

First, an increase in the basic deduction threshold for the tax base—from KRW 1.1 billion to KRW 1.2 billion for single-homeowners, and from KRW 600 million to KRW 900 million for multi-homeowners—leading to a significant reduction in the number of taxpayers;
Second, the abolition of punitive taxation on multi-homeowners and a reduction in tax rates;
Third, a reduction of the tax burden cap to 150 percent.

Overall, the government’s proposal represents a substantial easing of the CREHT.

If passed, the amendment is expected to reduce tax revenue by KRW 1.4 trillion in 2023 and approximately KRW 1.99 trillion annually from 2024 onward. The number of housing-related CREHT taxpayers is projected to decline from 1.22 million to 660,000—nearly a 50 percent reduction.

In contrast, the Democratic Party’s amendment proposed by Rep. Kim Seong-hwan (Bill No. 17031) includes:

raising the tax base threshold for multi-homeowners to KRW 1.1 billion, equal to that for single-homeowners;

lowering tax rates for properties with a tax base of KRW 600 million or less among owners of three or more homes (or two homes in regulated areas);

raising the lower bound of the fair market value ratio to 80 percent.

As this proposal combines both relief and tightening measures, the expected revenue reduction is minimal—approximately KRW 194.2 billion per year—suggesting that it would have little practical impact on reducing tax burdens. This report aims to analyze recent trends and structural problems of the CREHT and explore appropriate directions for reform.

2. Recent Trends in the CREHT and the Rapid Expansion of Taxable Households in the Seoul Metropolitan Area
◩ Over the Past Six Years, Housing-Related CREHT Revenue Increased Tenfold, While Both the Number of Taxpayers and Per-Capita Tax Burden Quadrupled

An examination of housing-related CREHT trends over the past six years, including the five-year Moon Jae-in administration, shows a dramatic expansion. The number of taxpayers rose from 332,000 in 2017 to 1.22 million in 2022, while the share of homeowners subject to the tax increased from 2.4 percent to 8.1 percent—nearly a fourfold rise.

Total tax revenue surged from KRW 390 billion in 2017 to KRW 4.1 trillion in 2022, representing a tenfold increase. Under the Yoon Suk-yeol administration, revenue declined by approximately KRW 300 billion due to expanded tax credits for elderly and long-term single-homeowners.

Meanwhile, the average CREHT burden per taxpayer increased from KRW 1.169 million in 2017 to KRW 4.73 million in 2021—more than a fourfold rise—before falling to KRW 3.363 million in 2022 following tax relief measures.

◩ In 2022, More Than 22 Percent of Homeowners in Seoul Were Subject to the CREHT

As of 2022, the number of CREHT taxpayers in the Seoul metropolitan area totaled 961,000—comprising 584,000 in Seoul, 39,000 in Incheon, and 338,000 in Gyeonggi Province—accounting for 78.8 percent of all 1.22 million taxpayers nationwide.

In Seoul alone, 22.4 percent of homeowners—and 13.4 percent of homeowners across the entire metropolitan area—were subject to the CREHT. This makes it increasingly untenable to characterize the tax as targeting only the top 2–4 percent of high-asset households. Both the scale and scope of CREHT taxation have expanded excessively over the past six years.

3. Structural Problems of the Existing CREHT System
◩ No Discernible Effect on Housing Price Stabilization

The original objectives of the CREHT included stabilizing housing prices and enhancing tax equity and redistribution. However, empirical analysis indicates that the tax has had little impact on suppressing housing price increases.

According to a study by Choi Seung-moon et al. (2018) at the Korea Institute of Public Finance, while housing price growth temporarily slowed during discussions of the tax’s introduction, no statistically significant impact was observed after its implementation—particularly for apartment prices in Seoul. Instead, interest rates were found to exert a stronger influence on housing prices.

Indeed, national and metropolitan housing price indices over the past decade show steady increases until prices began to decline after 2021—largely due to sharp interest rate hikes initiated by the Bank of Korea in 2022. This demonstrates the failure of the Moon administration’s property tax-centered approach to housing price stabilization.

◩ No Income Redistribution Effect and Regressive Impact on Low-Income Elderly Households

Research by Park Myung-ho (2019) and Sung Myung-jae (2022) indicates that strengthening property holding taxes does not produce meaningful income redistribution effects. In fact, due to the progressive structure of such taxes, they may generate regressive or even negative redistribution outcomes.

This is largely because many elderly households—who own homes but have limited income after retirement—have been swept into the CREHT tax base.

◩ Increased Tax Burdens Likely Passed on to Tenants, Distorting the Rental Market

The average per-capita CREHT burden rose steadily from KRW 1.17 million in 2017 to KRW 3.36 million in 2022. When combined with distortions caused by the lease protection “three laws,” this increased burden is highly likely to be passed on to tenants, adversely affecting both the jeonse and monthly rental markets (Lim Dong-won, 2021).

Amid high interest rates, landlords may shift toward semi-jeonse or monthly rent, reducing jeonse supply and driving up prices—an example of tax incidence being shifted to renters. Data from the Seoul Real Estate Information Plaza (2018–2022) clearly show an expansion of semi-jeonse transactions.

◩ Violation of the Ability-to-Pay and Proportionality Principles

The current CREHT system violates the ability-to-pay principle by imposing punitive taxation on multi-homeowners and disproportionately burdening low-income elderly households. Tax liabilities for properties of equal value can differ by up to tenfold depending solely on ownership status, disregarding taxpayers’ actual economic capacity.

Although tax credits of up to 80 percent for elderly and long-term single-homeowners have been in place since 2011, they remain insufficient. Moreover, property holding taxes are levied on unrealized gains. The tenfold increase in total tax revenue and fourfold expansion of the tax base over six years demonstrate the excessive and punitive nature of the CREHT, raising serious concerns regarding the constitutional principle of proportionality.

4. Immediate Policy Task: Passing the Government’s Amendment Without Alteration Within the Year

The government’s proposed amendment—currently under discussion in the Strategy and Finance Committee—addresses many structural flaws of the CREHT by increasing basic deductions, abolishing punitive tax rates for multi-homeowners, and lowering the tax burden cap to a uniform 150 percent.

The reform moves the tax system closer to compliance with the ability-to-pay principle, ensuring that tax burdens do not exceed taxpayers’ financial capacity. Accordingly, the unamended passage of the government’s proposal within the current legislative year is essential.

At the same time, to restore balance in asset taxation and revitalize the real estate market, reductions in capital gains tax and acquisition tax should be pursued in tandem.

Korean version: https://www.cfe.org/bbs/bbsDetail.php?cid=issue&pn=2&idx=25169