“After living here for over 30 years, are you telling me to sell my house and leave?”
On August 4, the day after the government announced its real estate tax reform plan, brokers in the One Bailey complex in Banpo-dong, Seocho-gu, Seoul, were inundated with calls from homeowners seeking consultations. Long-term homeowners, particularly elderly members of the original cooperative, were busy weighing the increased property taxes against the reduced capital gains tax exemptions, calculating whether to sell or hold onto their properties.
One brokerage that has operated near One Bailey for 22 years reported receiving over 20 inquiries by midday regarding comprehensive real estate tax and capital gains tax burdens, as well as favorable selling timing. Many of the inquiries came from non-resident homeowners living in other regions or abroad, as well as members of nearby reconstruction cooperatives. Some homeowners even scheduled in-person consultations for detailed tax calculations.
The representative of a brokerage within the complex stated, “Many elderly cooperative members have lived in One Bailey for over 30 years and often have little income aside from pensions. With property taxes increasing and exemption benefits decreasing when they eventually sell, many homeowners are questioning whether they should sell now.”
Market analysts suggest that the tax reform could lead to adjustments in the asking prices of existing listings. Another brokerage representative noted, “There is a growing atmosphere among long-term cooperative members to consider selling. With existing listings piling up and not selling, homeowners who need to dispose of their properties will ultimately have to adjust their prices.”
Conversely, buyers are adopting a wait-and-see approach, anticipating that more tax-efficient properties may come onto the market. The brokerage added, “Buyers who were looking at properties before the announcement are now waiting for prices to adjust a bit more.”
One Bailey is considered a prime example of a complex that will be significantly affected by the introduction of long-term capital gains tax exemptions, as many original cooperative members have held their properties for extended periods, resulting in substantial capital gains. Even homeowners who have lived there for over 10 years may face increased capital gains tax burdens starting in 2028 if their profits exceed the new exemption limits. Currently, there are no limits on long-term capital gains tax exemptions until 2027, but they will be capped at 2 billion won in 2028 and 1 billion won from 2029 onward.
For instance, if a homeowner acquired an 84-square-meter unit at Raemian Prestige for 1.6 billion won, lived there for 10 years, and then sold it for 5.6 billion won, the capital gains tax is estimated to rise from 241.85 million won in 2027 to 449.85 million won in 2028, and to 945 million won in 2029.
Exit for Sellers Opened, but “Those Who Wanted to Sell Have Already Sold”
However, the prevailing outlook is that the increased tax burden will not immediately lead to a surge in urgent sales. The tax reform will be implemented gradually, allowing homeowners to choose their selling timing. Additionally, many homeowners who were eager to sell ahead of the expiration of the multi-homeowners' capital gains tax exemption on May 9 have already disposed of a significant number of properties.
Interviews with brokerages in major complexes in Gangnam, including One Bailey, Banpo Jaei, Acro River Park, and Raemian Daechi Palace, revealed that while inquiries about selling and tax burdens have increased since the announcement, the likelihood of new urgent sales remains low.
Homeowners often have the financial capacity to absorb the tax burden or are hopeful for further price increases. A broker near Banpo Jaei stated, “Those who wanted to sell have already done so, and the remaining homeowners are mostly inclined to hold onto their properties.” They added, “While some additional listings may emerge, the announcement alone is unlikely to trigger a flood of urgent sales.”
Many elderly asset holders are choosing to hold onto their properties despite the increased property tax burden, considering the transaction costs such as capital gains tax and acquisition tax. A broker in Daechi-dong explained, “If you sell a house worth 6 billion won, you have to pay capital gains tax and then incur acquisition tax on another property. Many homeowners in their 60s and 70s prefer to pay the property tax and keep their homes.”
Homeowners Transitioning to Owner-Occupancy Raises Concerns Over Rental Supply
While the pace of tax-efficient properties accumulating in the sales market is slow, a shift toward owner-occupancy is being observed in the rental market. Starting next year, homeowners residing in their properties will benefit from a basic exemption of 1.4 billion won for the comprehensive real estate tax, while those living elsewhere will only receive a 900 million won exemption. The tax credit for the comprehensive real estate tax and long-term capital gains tax will also be restructured to focus on the duration of residence rather than ownership.
One homeowner at Banpo Jaei, whose lease expired in July, inquired with a brokerage about the timing for determining residency status, as they could only move in after June 1, the date for comprehensive real estate tax assessment.
A broker at the firm noted, “Some homeowners are inquiring about moving into properties they previously rented out. With regulations encouraging owner-occupancy, the supply of rental properties is continuously decreasing.”
In Daechi-dong, this trend is already leading to a shortage of rental properties. A broker near Raemian Daechi Palace stated, “After the tax reform announcement, when asking homeowners about extending rental contracts, the response is increasingly, ‘I think I need to move in myself.’ Currently, there are only tenants looking for rentals, and very few new listings are available.”
Homeowners who continue to rent out their properties may also pass the increased tax burden onto tenants through higher rents. A broker near Banpo Jaei mentioned, “Among homeowners who are not selling, some have indicated they will raise rents to offset the increased tax burden. If listings do not emerge, the property tax burden may be transferred to tenants.”
The government has expanded the annual tax credit limit for rent for non-homeowners from 10 million won to 12 million won. However, the additional tax credit for regular workers is only about 300,000 to 340,000 won annually, or an average of 25,000 to 28,000 won per month. If the decrease in rental supply or the transfer of property tax leads to rent increases beyond this amount, the benefits of the expanded tax credit could easily be offset.
The rental market in Seoul is already vulnerable to further supply reductions. According to KB Real Estate, the average deposit for jeonse (long-term lease) in Seoul surpassed 700 million won for the first time last month. A survey by the Korea Real Estate Agency also indicated that jeonse prices in Seoul have risen for 77 consecutive weeks.
Kim In-man, head of Kim In-man Real Estate Economic Research Institute, stated, “As the property tax and long-term capital gains tax reforms are implemented gradually and the legislative process is still ongoing, there is little urgency for homeowners to sell their properties immediately. Tax-efficient properties are likely to be distributed over the next year until 2027.”
He added, “If demand from homeowners selling in Gangnam shifts to properties priced below 2 billion to 3 billion won, competition in that price range may intensify. Especially with the increased incentives for owner-occupancy, the rental supply in Seoul is likely to decrease significantly, leading to considerable shocks in the rental market.”
* This article has been translated by AI.
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