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Prices for apartment houses in Korea have risen by nearly 20% this year. As a result, the tax burden for home ownership in Korea is expected to surge, with taxes for multi-home owners in the Seoul metropolitan area increasing by more than double.
The big picture: The Korea housing market is a fire growing out of control. Every year, tens of thousands of apartments are built to meet insatiable speculative demand, yet they remain unoccupied due to high prices, multi-home owners, and Korea’s dwindling population
- Housing prices in Seoul and its satellite cities are growing at an unprecedented rate. In just 10 weeks since the start of 2021, apartment prices have surged more than 5-10%.
- Data from the Korea Ministry of Land, Infrastructure, and Transport (graph 1) show that apartment housing prices are expected to increase by 19.1% in 2021.
Why it matters: This historically unprecedented increase in home apartment prices has left young Koreans on the outside looking in. Young Koreans now lament the harsh reality that they will never own a home. And many are taking drastic measures.
- According to Statistics Korea, the youth unemployment rate in Korea jumped to a whopping 21-year high of 27.2% in January, 2021.
- Covid19 has worsened the housing price situation. During President Moon Jae-in’s tenure, the average apartment price per 3.3 square meters (1 pyeong) soared 58% to 41.6 million KRW ($37,585 USD).
Yes, but: Purchasing a high-rise apartment is a rite of passage for young Koreans seeking to securing their status among their peers, especially newlyweds. This has resulted in externalities, with young Koreans coming up with inventive ways to make sure they have a fighting chance.
- President Moon, in an attempt to address the issue, has instituted a lottery or wait list by which individuals with incomes below a certain threshold qualify for a chance to win an apartment.
- Between the lines: Some savvy Koreans are pretending to be single, splitting up assets, or holding off on marriage altogether to maximize their chances at the housing lottery.
Adding on: The housing tax burden is expected to make matters even more problematic for home ownership. The Korean government just announced that multi-family housing with values over 600 million KRW ($531,227 USD) will be subject to huge tax increases. This is especially true for owners of multiple apartments.
- By the numbers: The increase in housing tax burden will be large across all areas of Seoul, but especially high in the southern Gangnam area of Seoul. Multi-home owners will be expected to pay in excess of 100 million KRW ($88,537 USD) in housing taxes per year.
- Multi-home owners will bear the greatest tax increases, with owners bearing between 120% to 208% increases in tax burden.
The bottomline: Korea continues to face an unprecedented housing crisis, with young people and multi-home owners bearing tremendous burdens, just in different ways. It remains to be seen how President Moon’s housing measures will bear out, but until now they have only fueled the housing price craze.