The government has decided to revive the housing rental business with the goal of making a soft landing in the real estate market.
The abolished apartment registration rental business will be allowed again only if the size of the national housing is less than 85㎡, and tax benefits such as heavy capital gains tax exclusion and comprehensive real estate tax exclusion will be supplemented.
However, there are negative evaluations about reality. This is because the market situation is not so good that it is difficult to expect an incentive effect for the rental business with the carrots presented right away. It is pointed out that there is no substance worth receiving among the thrown benefits.
Is it time to buy an apartment due to low acquisition tax?
It is not easy to acquire a new apartment right away and start a rental business.
The government decided to lower the acquisition tax rate for multi-homed people to less than half as an incentive for the rental business, and to reduce the acquisition tax on the purchase and lease of new apartments at most.
In the case of areas subject to adjustment, the acquisition tax rate for two houses will be reduced from 8% to a basic tax rate of 1 to 3%, and for three houses from 12% to 6%. The acquisition tax rate for corporations and four or more houses will also be cut in half from 12% to 6%.
In addition, it was decided to revive the benefit of 50% to 100% acquisition tax reduction for rental businesses purchasing less than the national housing size.
However, it is difficult to expect demand to purchase and rent a house just because the acquisition tax is lowered. This is because high interest rates, which have the greatest impact on the housing market, are continuing, and prices are falling more steeply.
Apartment prices, which have already fallen sharply, are predicted to fall further next year. Weekly apartment sales prices in December fell by the largest ever, and the housing market consumer sentiment index also fell for the 7th consecutive month since last April. The decline is greater in the metropolitan area and Seoul, where the areas subject to adjustment are concentrated.
It is not an easy environment to set up a plan to purchase an apartment, especially an apartment in an area subject to adjustment, and rent it out.
Registering for rental to avoid heavy taxation, but heavy taxation has been lifted
If you are a multi-homed person who has a house that is not being sold anyway, rather than a new acquisition, the method of renting out a long-term lease can act as an incentive.
This is because the government decided to give long-term rental business operators for more than 10 years the benefit of adding up and excluding them when calculating the comprehensive real estate tax again.
In fact, in the case of multi-housing owners whose registration was recently canceled while running a rental business, the comprehensive real estate tax burden is quite large.
In the past, prior to September 13, 2018, there was a benefit of adding up and excluding comprehensive real estate tax even for rental housing in areas subject to adjustment.
However, as a result of the 9.13 countermeasures, rental housing was also included in the total real estate tax. Prior to September 13th, business operators who had registered for a five-year long-term lease by taking advantage of the government incentives began to feel the burden of comprehensive real estate tax as a large number of lease registrations were canceled at the beginning of this year.
If they register for rental again, they will be able to benefit from the exclusion of aggregate real estate tax. However, it is evaluated that it is difficult to induce rental registration only by excluding the combined real estate tax.
Tax accountant Choi Wang-gyu said, “In fact, the comprehensive real estate tax is now changing to a level that the tax burden is bearable while lowering the tax rate and official price and increasing the basic deduction.” did.
Tax accountant Lee Jang-won also said, “Multi-homed people did the rental business because they were afraid of the heavy tax rate, but now that is the process of abolishing all heavy tax rates for acquisition, possession, and transfer, that factor is gone.” There won’t be many landlords who will be stranded for 10 years while doing business.”
September 13, 2018 they will never forget
Market conditions are not as good as when the rental business registration was activated in the past, but there is also a problem that the weight of the measures is less.
The measures to support housing rental businesses included in the government’s next year’s economic policy direction fall far short of the benefits prior to the September 13, 2018 measures. Although it was overturned in the 9.13 countermeasure, prior to that, not only the combined exclusion of comprehensive real estate tax, but also the long-term holding special deduction and tax exemption benefit from capital gains tax were considerable for rental business operators.
If you keep the mandatory lease period of 8 years, you can receive 50% of the long-term holding special deduction, and if you lease for more than 10 years, up to 70% is deducted. In particular, there was a benefit of 100% reduction in capital gains tax when renting for more than 8 years. This is the reason why housing rental registrations increased significantly at that time.
Tax accountant Choi Wang-gyu said, “It will not be easy to attract people to the leasing business unless the Special Taxation Restriction Act is changed and transfer tax benefits such as long-term holding special deduction are returned to the previous level.” It is difficult to register,” he said.
Confidence in government policy is also a big problem.
The government, which poured out tax benefits by inducing rental registration in 2017, recovered the benefits en masse with the September 13 measures in 2018, just over a year later. Multi-homed people were used as policy helpers to supply rental housing and nurture the rental business, but when housing prices soared, they were cornered as speculators and vomited out the benefits.
In this process, apartment rentals were eventually abolished and multi-housing owners who experienced a situation where rental registration was canceled mostly overlap with the multi-housing owners that the government is trying to attract as a rental business. It is questionable whether those who have suffered a major betrayal will walk the path of registered lessors again.
Tax accountant Lee Jang-won said, “It is true that there is anxiety in the market that the government may release regulations and then overturn them again as before.” There will be more,” he said.
10 or 15 years is too long… Low cost performance with the 5% rule
The unrealistic requirements for rental housing are also great.
The government plans to give benefits only to long-term leases of 10 years. In the past, 4, 5, and 8-year leases were also beneficial, but now the benefits are provided only when the lease is for at least 10 years.
Even in this measure, the benefit of further easing the housing value requirements for rentals of 15 years or more was proposed.
However, in a time of rapid market change like now, anxiety about long-term rental is greater. This is because it is difficult to sell a house in the middle if it is registered as a long-term rental.
It’s a down market right now, but the market may change within 10 years, but if you register as a long-term lease, you can’t do it even if you want to sell it late. This is why rental operators in the past preferred 4- or 5-year leases, although tax benefits were small.
Moreover, if you register as a rental business, there is also a restriction that you can only take the rent increase rate below 5% per year. Assuming that the current high interest rate continues for the time being, the rental business is a business with very low cost-effectiveness. Although the interest rate on the loan is high, the rent cannot be raised above 5%.
It is not easy to meet the housing price standards.
In order to receive tax benefits as a housing rental business, you must rent a house that is below the national housing scale and has a standard market price of less than 600 million won in the metropolitan area and less than 300 million won in regional areas.
Although the official housing price is declining, it is not easy to find a house with an official price of less than 600 million won in the metropolitan area, especially in Seoul. Even if there is, it is highly likely that the unsold units are less attractive as rental housing.
Is it something that can be implemented… Political mistrust overlaps
Most of the measures to revive the housing rental business announced on December 21st require revision of the law.
In terms of tax benefits alone, laws and enforcement ordinances need to be amended for the reduction of the acquisition tax of multiple houses, reduction of the acquisition tax and exclusion of additional corporate tax for purchased rental housing, exclusion of heavy transfer tax when registering rental housing purchased in areas subject to adjustment, and exclusion of the combined real estate tax.
Legislative amendments must pass the National Assembly, and most enforcement ordinances are reported to and approved by the Standing Committee of the National Assembly.
However, the 2022 tax law amendment bill, which has already been announced to change from July this year, has not yet passed the threshold of the National Assembly. Among the tax laws related to rental business, such as the reduction of the heavy tax rate of comprehensive real estate tax and the reduction of the income tax rate, the previously created and announced laws are about to be passed at the plenary session of the National Assembly, passing the legal deadline. The contents are also quite different from the contents announced by the government.
Plans to revive the rental business are scheduled to be dealt with at the next extraordinary session of the National Assembly as early as next year, but it is unknown how the consultation process in the political circles will proceed in the meantime.
Tax accountant Choi Wang-gyu pointed out, “Most of these are law amendments, and an agreement between the ruling and opposition parties is required. Taxpayers have many questions now about whether these measures will really be realized and whether they will be effective.”