Location Over Tax Breaks: A Warning on Off-Center Villas

Jeon Eun-seong, CEO of Sejong Land Development, explained that investors should prioritize profitability over immediate tax benefits, which are the essence of investing. Real estate investment is a contest against tax law and speculation-curbing measures, and it succeeds only when investment returns exceed the taxes paid.

He warned that focusing solely on immediate tax benefits makes it easy to miss profitability, the essence of investing. He suggested that such an approach could lead to investment failure.

Apartments are excluded, while villas, officetels and other housing are exempt from being counted as homes for acquisition tax, comprehensive real estate holding tax and capital gains tax purposes. This applies to non-apartment homes such as villas, multi-family houses, officetels and urban living housing.

When acquiring such homes, the benefit excludes them from the home count used in calculating acquisition tax, comprehensive real estate holding tax and capital gains tax.

Because high land prices in central districts make it hard to keep prices within 600 million won, builders are increasing the supply of new villas in outlying areas, promoting tax benefits.

Investors, swayed by these tax-benefit advertisements, tend to buy properties in less-preferred areas with low investment value. This, the report notes, could make buyers hard to find later and push assets further into less-preferred areas.

Tax benefits apply only at the time of purchase and may not carry over to the next buyer. This limitation means that today's tax benefits could leave investors with an asset of little use in the long run.

Jeon Eun-seong stressed that, even without current tax benefits, investors must buy into core locations that everyone prefers in order to find future buyers who want the asset. Securing a core location, he explained, is the best tax benefit in the long run.