Gyeonggi Province to Recommend Implementing Price Public Notice System for Non-Residential Real Estate to Central Government

[Suwon Ilbo=Park No-hoon Reporter] # B Complex Shopping Mall, a building with 3 basement levels and 21 above-ground floors located in City A. The market price of Unit A on the first floor, the most expensive in B Complex, is 1.5 billion won. Unit B in the basement, the cheapest with similar land share ratio, is valued at only 266 million won. However, their standard market values are 211 million won and 189 million won respectively, with property owners paying nearly identical taxes.

According to a self-commissioned investigation by Gyeonggi Province, it has been found that non-residential real estate such as shopping malls and factories do not have an official announced price applied to them, resulting in unfair taxation.

The province stated that taxes are lower for large cities, high-value properties, and newly constructed buildings, but higher for rural areas, low-value properties, and older buildings. To ensure fair taxation, the province has decided to recommend to the government the prompt implementation of a price public notice system for non-residential real estate.

Gyeonggi Province announced on the 18th the results of a research project on "Survey and Analysis of Market Reflection Rate of Non-Residential Real Estate."

The province conducted the related project through the Korea Real Estate Research Institute from April to December of last year.

Official real estate prices are used as indicators for calculating various taxes and contributions such as property tax, health insurance premiums, and basic pensions.

Under the current system, land and housing are taxed based on officially announced prices, but non-residential real estate has no official announced price.

Instead, local governments use the standard market value of buildings created by the Ministry of the Interior and Safety by applying building structure, use, location, and other factors as the basis for tax assessment standards (official land price for land and standard market value for buildings) to levy property taxes.

The problem is that the Ministry of the Interior and Safety's standard market value criteria for buildings do not reflect actual building value indicators such as floor utility rates and rental levels, resulting in differences from actual market prices.

In 2016, the government amended the "Real Estate Price Public Notice Act" to require non-residential real estate to also announce official prices to address this issue, but has not yet implemented it citing practical difficulties.

This research project aimed to develop objective and effective tax system improvement measures for non-residential real estate. It compared the tax assessment standards (official land prices for land and standard market values for buildings), actual transaction prices, and appraisal values of non-residential real estate within the province to analyze market reflection rates.

Market reflection rate is an indicator showing the level at which the official announced price or standard market value of currently owned real estate compares to the market price.

Based on 2020, the national average market reflection rates are 65.5% for land, 53.6% for single-family homes, and 69.0% for apartments.

The government previously stated it would raise the market reflection rate of official prices, which was in the 60-70% range, to 90%, but for non-residential real estate, there has been no properly analyzed market reflection rate and no specific plans.

The survey was divided into "collective real estate" such as shopping malls and officetel where land and buildings are transacted together like apartments, and "general real estate" such as factories and department stores where land and buildings are transacted separately like single-family homes.

Analysis results showed that for general non-residential real estate where land and buildings are separable, the market reflection rate for land is low at 60% or less, while for buildings it is high at 80% or more, showing imbalance across the entire province.

By price level, the higher-value non-residential real estate, the lower the market reflection rate. In particular, general real estate exceeding 50 billion won had a market reflection rate of 55.5%, and collective real estate exceeding 5 billion won also showed a low rate of 53.5%.

In reality, an office building newly constructed in 2018 in Bundang-gu, Seongnam with 15 above-ground floors and 7 basement levels has a transaction price of 366.09 billion won but a tax assessment standard of 183.56 billion won, showing a market reflection rate of only 50.1%.

By region, a sample survey of 8 areas showed that market reflection rates in both general and collective non-residential real estate were lower in large cities such as Seongnam Bundang (general 61.5%, collective 51.2%) and Anyang Dongan (general 60.6%, collective 50.8%) than the overall average (general 66.0%, collective 58.3%).

The variance in market reflection rates between floors for collective non-residential real estate was also significant.

For collective non-residential real estate, although floor utility ratios differ between floors such as the first floor and basement, this is not reflected, resulting in a market reflection rate of only 23.9% for the first floor, while basement levels exceed market value at 130.7%.

The province confirmed that properties located in large cities and high-value buildings are paying lower taxes from this project results and argued that the price public notice system should be promptly introduced for non-residential real estate.

Accordingly, the province plans to request from the Ministry of Land, Infrastructure and Transport the prompt implementation of the price public notice system for non-residential real estate pursuant to the "Real Estate Price Public Notice Act," and recommend cooperation with local governments to actively promote realization policies for non-residential real estate ancillary land.

Additionally, the province will request the Ministry of the Interior and Safety to improve the standard market value calculation criteria to improve the serious imbalance of current non-residential real estate building tax assessment standards, and plans to enhance equity through periodic adjustments to the standard market value of buildings by the province itself.

Earlier, Gyeonggi Province Governor Lee Jae-myung pointed out in a 2019 interview that "the higher-priced the land and the more expensive the house one lives in, the less tax is paid," and "this deepens the rich-get-richer and poor-get-poorer phenomenon, encourages unearned income, and has fairness issues requiring improvement."