On May 4, the head of the Presidential Policy Office held a briefing on the real estate market, stating that there would be no surge in housing prices after May 9, but rather a gradual increase. While this was meant to emphasize that a price spike was unlikely, some critics argued that the use of the term "increase" was premature.
President Yoon Suk Yeol expressed a strong commitment to normalizing housing prices in Seoul through social media, hinting at a reversal in housing price forecasts and the emergence of bearish sentiment after three months.
Following the pivotal date of May 9, it is essential to analyze the direction of the real estate market. The President's mention of a reversal in housing price forecasts aligns with findings from the 2026 KB Real Estate Report released on May 5. Earlier this year, both experts and real estate agents anticipated price increases, but as the likelihood of tax hikes in the second half of the year grew, a majority of agents shifted their outlook to predict declines.
When examining the survey results, it is crucial to consider the timing and scope of the survey. The survey was conducted from March 31 to April 3 and included agents from across the country. In early April, the Gangnam area continued to experience a downward trend, and the panic that had gripped the market in February had not yet dissipated. However, signs of a rebound began to emerge in Gangnam after mid-April as the number of urgent sales decreased. Had the survey been conducted in early May, the outlook might have been significantly different.
The demographics of the survey participants also varied. Most experts were based in the Seoul metropolitan area, while agents were spread nationwide, reflecting the stagnant real estate conditions in other regions. Narrowing the focus to the metropolitan area, the percentage of experts predicting an increase in housing prices dropped from 93% in January to 72% in April, while agents' predictions fell from 84% to 66%. Despite the decline in optimistic forecasts, both groups still leaned towards an increase in the metropolitan area.
What will happen to housing prices in Seoul after the implementation of the increased capital gains tax on multiple homeowners starting May 10? From that date, homeowners with two properties in regulated areas will face a maximum tax rate of 71.5%, while those with three or more properties will be subject to a staggering 82.5% rate. For a homeowner with three properties and a market gain of approximately 1 billion won, the capital gains tax could amount to around 750 million won, leaving little profit after accounting for mortgage interest and holding costs.
I have yet to see anyone willing to sell while incurring such high taxes. Homeowners who must sell have already listed their properties as urgent sales before mid-March. After May 10, it is likely that these homeowners will withdraw their listings or even raise their asking prices. No one would be foolish enough to sell at a loss while facing increased taxes, and those unwilling to sell will likely increase their asking prices even if transactions slow.
Properties that were left vacant for sale may be filled with tenants again, potentially increasing rental inventory. However, considering the ongoing rental crisis and the likelihood of rising holding costs, rental prices may increase further. Some speculate that the market could see a surge in prices due to a lack of available properties, but until August, intense negotiations will likely lead to a stagnation in transactions, making a price surge unlikely.
Potential buyers, having experienced the urgency of sales in February and March, are unlikely to jump back into the market, especially with lending conditions remaining tight. However, if no effective policies emerge to shift the housing market before the Chuseok holiday in September, the fear of missing out (FOMO) could lead to renewed volatility.
So far, the discussion has focused on the high-end apartment market, which is feeling the pressure of increased capital gains taxes. The mid-priced apartment market, particularly those valued under 1.5 billion won, is unlikely to see a quick resolution to the severe rental crisis, and a shortage of new units could lead to price increases spreading beyond Seoul to Gyeonggi and Incheon.
The government is expected to implement further demand suppression strategies through tax regulations before the Chuseok holiday in September. Hints from the Presidential Policy Office briefing suggest that multiple homeowners, non-resident single homeowners, and high-value properties will be targeted.
The government plans to raise tax rates for multiple homeowners and properties valued over 5 billion won, increasing the fair market value ratio from 60% to 80% to heighten the burden of comprehensive real estate taxes. Additionally, non-resident single homeowners may see reductions in long-term holding tax benefits.
The government's intention is to pressure multiple homeowners and non-resident single homeowners to curb investment demand and encourage property listings.
However, the likelihood of the real estate market responding as the government intends seems low. The high-end apartment market in areas like Gangnam has only resilient sellers remaining, and reducing long-term holding tax benefits for non-resident homeowners may lead them to choose to occupy their properties, further destabilizing the rental market.
The reason for targeting high-value properties for increased holding taxes is that raising the tax burden on properties valued under 3 billion won could be politically risky for the ruling party ahead of the 2028 general elections.
The apparent lack of an exit strategy for stabilizing housing prices in Seoul stems from the government's approach of applying standards of unearned income and fairness to real estate, which has narrowed the scope of its policies. Instead of a punitive strategy of raising both capital gains and holding taxes, a more effective approach could involve increasing holding taxes while lowering capital gains taxes to facilitate property listings.
If the issue of unearned income is a concern, the government could consider allowing the sale of Seoul apartments to purchase unsold properties in other regions or offer capital gains tax reductions for sales below market value. Creating an environment that encourages a desire to study, rather than using punitive measures, is key to addressing these challenges.
* This article has been translated by AI.
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