South Korean property boom fizzles out as investors balk at plan to remove tax incentives
- Foreign and local investment declined 31 per cent to US$4.44 billion in the first quarter from a year earlier
- Real estate funds and private real estate investment trusts, which enjoyed lower levels of tax, will have to pay the same tax rates as regular companies
Local and foreign investment in South Korean real estate dropped by nearly a third in the first three months of the year as Seoul announced plans to remove tax perks granted to the most common investment vehicles used by institutional investors.
In the first quarter of the year, total foreign and local investment declined 31 per cent to US$4.44 billion from US$6.47 billion in the same period last year, data from Real Capital Analytics showed.
Under the country’s current tax regime, real estate funds (REF) and private real estate investment trusts (Reits) enjoy a flat property tax on land of 0.24 per cent per annum, lower than an incremental tax rate of up to 0.48 per cent for regular companies.
REFs and Reits are also exempted from paying aggregate real estate tax, while regular companies pay an incremental tax rate of up to 0.84 per cent.
Under the new proposal, private REFs and Reits will have the same tax rates applied to regular companies for certain taxes. The property tax on land of up to 0.48 per cent per annum will have an additional 0.14 per cent added if the property is in a city area.
