Government Implements Tax Incentives to Tackle Unsold Housing in Regional Markets
In a bid to mitigate the ongoing challenges associated with unsold housing in provincial areas, the government has rolled out a significant policy change. This measure allows for the application of the “one household, one dwelling” exception in the calculation of capital gains and comprehensive real estate tax for individuals who own a single home and decide to purchase unsold properties in the provinces following their completion.
The real estate development sector views this initiative as a strategic move to enhance the currently difficult market conditions. According to insights from the construction industry as well as updates from the Ministry of Land, Infrastructure, and Transport on the 9th of this month, the government confirmed on the 8th that it intends to pursue legislative actions aimed at stabilizing local real estate markets without delay within this quarter. The primary objective is to address the issue of unsold homes in different provinces. Starting this year, individuals residing in one dwelling will benefit from the tax exception when they acquire unsold properties after their completion, effective from January 1st.
Additionally, the policy extends to individuals purchasing homes in areas experiencing population decline, where they will also qualify for the “one household, one dwelling” tax exception. Furthermore, both non-homeowners and those with a singular residence will see a reduction in acquisition tax, up to 50%, in such regions. For apartments that remain unsold but are subsequently rented out for longer than two years, the original acquisition tax for housing construction businesses will be cut by as much as 50%. The parameters for the comprehensive real estate tax exception on low-priced housing will shift, raising the public notice price limit from 300 million won to 400 million won. Additionally, the threshold for the exclusion of extra acquisition tax on these affordable homes will increase from a public notice price of 100 million won to 200 million won, applicable solely to provincial dwellings. Industry experts view these measures positively, suggesting they will stimulate investment interest in the sluggish local real estate market.
Companies engaged in real estate development have noted that if property taxes for unsold residences post-completion are aggregated and then individually addressed, it will significantly lessen the tax burden. A representative from Company A, which is actively engaged in developmental initiatives in the provinces, remarked, “The heavy taxation on property taxes for unsold dwellings has been a substantial concern for implementing firms. Fortunately, this new measure substantially alleviates that financial strain.” They added, “With numerous asset holders in the regions, there’s an increased potential for them to consider purchasing apartments, particularly those located in prime or marketable areas, thanks to the ‘one household, one dwelling’ exception.” Similarly, an executive from Company B expressed, “This policy offers crucial support to the struggling apartment sales market, which has been grappling with a real estate downturn.” They elaborated that the unsold dwellings, post-completion, represent a troubling segment of the market—properties that have been built yet remain unsold.
The provision of tax benefits can significantly relieve the financial pressures faced by construction firms. Implementing companies have reported a marked decline in the real estate market since the latter half of 2022, particularly in provincial areas, leading to a halt in numerous development projects. They attribute this stagnation to a contraction in project financing (PF) and a surge in construction costs, which have collectively created a challenging environment over the past three years.
Statistical data indicates a concerning trend; the number of unsold dwellings in the provinces has risen sharply to over 10,000 units. While the count of unsold properties decreased from 10,761 at the close of December 2020 to 6,848 in 2021 and further to 6,226 in 2022, 2023 has seen an alarming increase, with the number climbing to 8,690 units in the same year. By October, the figure reached 14,464, and within just one month, it had surged again to 14,802 units, marking a 2.3% rise (approximately 338 units) from the previous month. The chairman of Company C, responsible for several development sites in rural regions, commented, “To instigate new projects, it’s crucial that we find owners for these unsold units; however, the resolution of these properties remains stalled,” stressing the necessity for clearing unsold inventory in order to facilitate access to PF loans for other upcoming developments.
Moreover, there are increasing calls for the government to extend tax incentives not only to completed unsold properties but also to encompass all general unsold homes in provincial regions. A representative from Company D pointed out, “We are witnessing a significant number of unsold dwellings emerging in the capital region, which exhibits far better market conditions compared to the provinces.
In newly built complexes, prices may even drop below-expected premiums.” They cautioned against limiting focus solely to unsold dwellings after completion in provincial regions, noting that such a narrow scope may restrict rapid improvement in the overall market landscape.
