A price list posted at a real estate agency in Seocho-gu, Seoul last July. yunhap news
As the general real estate tax surged this year, led by multi-homeowners and corporations, there are concerns that they could pass on the tax burden to the lessee. As the case of multi-homeowners whose ownership tax amounted from tens of millions to 100 million won in addition to the property tax and property tax was circulated, tenants are worried that they might be hit by the ‘reinforcement of ownership tax policy’. To what extent will the tax transfer resulting from the sharp increase in property tax burden become a reality? Experts point to three variables: the demand for school districts, the monthly rent market situation, and the Housing Lease Protection Act.
① High possibility of transfer in ‘Daechi-dong’ without substitutes
Regarding the claim that the landlord’s property tax is ultimately passed on to the tenant’s rent, Dong-Hoon Huh, vice president of Incheon Research Institute, said, “It is a matter that has been debated for decades, but the most influential theory is that it cannot be passed on as much as we thought.” In real estate, the owner cannot reduce the supply of land just because taxes are raised. As long as the tax rate on the share of the building is the same across the country, the majority theory is that the owner will pay a higher share of the tax on the land and the building because the building cannot be moved around to avoid the tax.” Variables arise on the demand side. When the lessor raises the rent by the amount of the increased tax, no substitute can be found. Vice-Chairman Huh said, “When it becomes expensive, people avoid it, but it is passed on to consumers who cannot avoid it.” This means that the transfer of property tax is more likely to occur in a specific region rather than in a broad and indiscriminate manner. A typical example is an area where there are a lot of housing for investment by multi-family dwellers and ‘demand for school districts’ for educational purposes is concentrated. In fact, as a case of damage from transfer of tax to tenants, ‘parents in Daechi-dong whose children decided to go back to school’ are being mentioned. Woo Seok-jin, a professor of economics at Myongji University, who studied the phenomenon of transfer of property taxes to jeonse prices in 2008, said, “Multi-family housing has almost reached the sub-deposit limit (300%), and it can be passed on to rent in the next term.” “Especially in Gangnam, education It is a demand with low price elasticity when a purchase is made for a special reason, such as demand. They have to be there even with a loan, so the transfer will inevitably increase,” he said.
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② The rent price is determined by the market… Limit on unconditional transfer
However, even in areas where demand is inelastic like Daechi-dong, there is a question mark as to whether unconditional transfer is possible. Park Won-gap, senior real estate expert at KB Kookmin Bank, said, “Transfer is possible when the supplier (lessor) has a superior position, and if the market price is ignored and transferred through an unconditional increase, a vacancy occurs. It seems that a reversal of the monthly rent is more prevalent than the full monthly rent, but it will be difficult to pass the tax on as a retreat for multi-family homeowners,” he said. For example, if the property tax rises from 40 million won to 120 million won, it is difficult to pass on the entire 80 million won to rent, as the market price allows for a limited amount of transfer. The rental market situation in Daechi-dong does not seem to be a ‘supplier-dominated market’ to the extent that consumers cry and accept the increased price by eating mustard. According to the apartment sale platform Asil data, as of the 25th, there were 543 sales, 1281 jeonse, and 1286 monthly rentals for sale in Daechi-dong. In particular, the number of jeonse and monthly rentals has increased significantly from 300 to 500 at the beginning of this year. The sale price of the Eunma Apartments is 8, while the Jeonse is 96 and the monthly rent is 78. A representative of Daechi-dong Qualified Brokerage Office said, “As the two-year real resident obligation for reconstruction is no longer required, homeowners who came in after repairing the house or homeowners who tried to move in are also putting on sale. There is no demand for movement itself, so there is no contract,” he said. Regarding the concern that the proportion of monthly rent will increase, CEO A said, “This is calculated at 350,000 won per 100 million deposit, and if the jeonse is 2 billion won, the market price is 1 billion won and 3.5 million won per month. It will be difficult,” he said. Professor Choong-ik Choi (Department of Public Administration) at Kangwon National University, who has studied the transfer of ownership tax, said, “In a study using data in 2018, we could not find a statistically significant transfer phenomenon due to the low ownership tax burden. He said, “However, it will not be a big problem because people who live in cheonsei of 2 billion won or 3 billion won are actually considered to be able to bear the burden.”
③ Lease 2 Act ‘real residence’ hole is also a variable in tax transfer
The government’s position is that the transfer of tax will be limited due to the effect of the new housing lease protection law being enforced from July last year, the right to apply for contract renewal, and the maximum rent for the previous month (Lease 2 Act) were introduced into the rental market. At the time of contract renewal, the rate of rent increase is limited to 5%. The room for a rise in rent according to the needs of the lessor is systematically controlled. Last year, Lee Jun-koo, an emeritus professor at Seoul National University (Department of Economics), said, “The surge in rents and monthly rents is by no means a logical conclusion related to the heavy real estate tax. only,” he pointed out. However, in areas or complexes where the jeonse/monthly rental market is dominated by suppliers, lessees are exempted from the protection of the 2nd Lease Act and are highly likely to become victims of tax transfer. In the case of the current Lease 2 Act, the lessee can only be evicted by the ‘actual resident doctor’ without any burden of proof, even by the lessor and lineal ascendants and descendants. Park Hyo-joo, secretary of the People’s Livelihood Hope Headquarters at the People’s Solidarity for Participation, said, “Compared to the past, there are devices to protect tenants, but they are still insufficient.” The problem is that the discussion is retreating to protect the interests of lessors rather than to improve the system,” he said. By Jin Myung-seon, staff reporter [email protected]