The government has introduced policy support for construction companies and multi-homeowners to overcome the construction recession, which is cited as a cause for weak domestic demand. To increase opportunities for construction companies, the government will expand public housing supply and introduce a three-part package to adjust construction costs. To stimulate housing transactions, the temporary exclusion of capital gains tax surcharges on multi-homeowners, significant players in the real estate market, will be extended for another year, and the heavy taxation on local real estate will be eased.
On January 2, according to the government’s “2025 Economic Policy Direction,” policies have been introduced to expedite the recovery of the construction and regional economies. The construction economy, a significant component of domestic demand, is sluggish. Construction investment in 2024 is estimated to decline by 1.5% compared to the previous year due to the delayed reflection of last year’s order and ground-breaking decreases, which has mainly affected the construction of apartments and other buildings. It is forecast to slightly improve, with a 1.3% decrease in the new year compared to last year.
The government plans to push forward with public housing. By 2025, 100,000 units of the public-sale housing “New Home” will be supplied, and 138,000 units of public and public-supported private rental housing will be initiated. Additionally, the new construction rental program will supply 150,000 units of new villas, etc., for public rental use by 2026, with contracts for more than 30,000 units to be finalized in the first half of the year. Seventy percent of the 6.8 trillion won allocated in the 2025 budget for major social overhead capital construction projects like highways will be executed in the first half of the year, with 52% anticipated to be executed in the first quarter.
A three-part package for adjusting construction costs has been introduced to address the issue of construction companies not participating in public projects due to low construction costs. It includes: introducing a standard for adjusting construction costs as part of public construction cost realization; increasing the purchase price of some private joint housing constructed on public land for public rental by LH by 10%; and including additional housing construction costs in the calculations for housing plot and construction cost surcharges.
To activate housing transactions, the government has announced tax benefits for multi-homeowners. The temporary exclusion of capital gains tax surcharges for multi-homeowners will be extended until May 2026. The basic capital gains tax rate for multi-homeowners ranges from 6% to 45%, with a 20 percentage point increase for owners of two homes and a 30 percentage point increase for those with three homes or more. Without the surcharge exclusion, the maximum tax rate for multi-homeowners, including local income tax, could reach 82.5%. However, with the surcharge exclusion, only the basic tax rate applies to sales of homes in designated areas by multi-homeowners until May 2026.
The criteria for excluding combined property tax for private rental housing supplied by constructing or purchasing 30 or more units for 10-year rental have also been raised. The threshold for construction-type based on the public announcement price has increased from 900 million won or less to 1.2 billion won or less, and for purchase-type from 600 million won (300 million won in non-metropolitan areas) or less to 900 million won (600 million won in non-metropolitan areas) or less. The plan also includes easing heavy taxation on local real estate. The target range for the property tax exemption applicable to low-priced, single-family homes in the provinces will expand from homes with an official price of 300 million won or less to those with an official price of 400 million won or less. The threshold for low-priced homes that are exempt from the acquisition tax surcharge will be eased solely for provincial houses, from an official price of 100 million won or less to 200 million won or less.
However, with the worsening situation of unsold apartments in rural areas, the effectiveness of the policy is uncertain. Challenges remain with restrictions on loans, which are key to purchasing homes. Meanwhile, the government has drawn a line on relaxing DSR and mortgage loan regulations, aiming to manage household debt. Vice Minister Kim Beom-seok stated, “We see construction economy recovery fundamentally focused on supply policy,” and emphasized that the goal of managing household loans remains valid. A Financial Services Commission official also mentioned that the directions for Stress DSR Stage 3 remain as previously announced.