President Lee Jae-myung said he is "not considering at all" extending the grace period on the heavy capital gains tax on multiple-home owners, making the heavier tax a reality. In 12 regulated areas in Seoul and Gyeonggi Province, the tax burden for multiple-home owners is expected to rise by as much as hundreds of millions of won. To avoid a capital gains tax bomb, multiple-home owners are expected to put their dwellings up for sale by late March to early April at the latest. However, the market expects that many multiple-home owners already anticipated the higher tax and cleared out their dwellings, and that once the heavier capital gains tax takes full effect, listings will lock up and a transaction cliff will emerge.
On the 23rd, the president posted on his X (formerly Twitter) account about the "exemption from heavier capital gains tax for multiple-home owners," set to end May 9, saying, "An extension is not being considered at all." He also noted on the 25th, "The end of the grace period for the heavier capital gains tax on multiple-home owners on May 9 was already decided last year," and added, "For contracts signed by May 9 this year, I will discuss in a Cabinet meeting allowing a grace period for the heavier tax."
The heavier capital gains tax on multiple-home owners adds extra tax to the basic capital gains tax rate of 6–45% depending on the tax base, based on the number of dwellings owned. In designated adjustment areas, 20 percentage points are added to the basic rate for owners of two dwellings, and 30 percentage points for owners of three or more. With local income tax of up to 10% added, the maximum effective rate for owners of three dwellings rises to as high as 82.5%. Introduced under the Moon Jae-in administration, the system has been deferred annually under the Yoon Suk-yeol administration by revising the enforcement decree.
◇ Capital gains tax for multiple-home owners to jump by hundreds of millions of won
With the heavier capital gains tax, multiple-home owners will face a sharp increase in tax when selling a home. When the heavier rate applies, the special long-term holding deduction also becomes unavailable, meaning they may have to pay as much as hundreds of millions of won more in tax.
On the 26th, ChosunBiz asked Park Dam, tax expert at the Inheritance and Gift Center of the Living Trust Consulting Department at Hana Bank, to run a capital gains tax simulation. Assuming a multiple-home owner bought Jamsil Els in Songpa-gu, Seoul for 1.7 billion won in Mar. 2022 and sold it for 3.1 billion won in Nov. last year, the capital gains tax would be 525.13 million won if the heavier tax is excluded. The total tax including local income tax would be 577.64 million won.
However, with the heavier tax, a two-home owner's capital gains tax would rise to 842.43 million won, and the total tax burden including local income tax would increase to 926.67 million won. For a three-home owner, the capital gains tax would be 982.18 million won, and the total tax including local income tax would be 1.08040 billion won. That means an increase in tax burden of about 400–500 million won compared with before the heavier tax was excluded.
If a multiple-home owner bought Mapo Raemian Prugio in Mapo-gu, Seoul for 1.56 billion won in Mar. 2022, held it for three years, and sold it for 2.33 billion won, the capital gains tax payable before the heavier tax would be 267 million won, and the total tax including local income tax would be 293.70 million won.
Under the same conditions, with the heavier tax, the capital gains tax a two-home owner must pay would be 439.91 million won. The total tax burden including local income tax would be 483.90 million won. For a three-home owner, the capital gains tax would rise to 516.66 million won, and the total tax burden would be 568.32 million won.
Tax benefits available for long-term holding of dwellings also disappear. Assuming someone bought Mokdong New Town Complex 7 in Yangcheon-gu, Seoul for 820 million won in Mar. 2015, held it for 10 years, and sold it for 2.4 billion won in Apr. last year, before the heavier tax the capital gains tax would have been 501.73 million won, plus 50.17 million won in local government tax, for a total of 551.90 million won. However, when the heavier tax applies and the special long-term holding deduction is unavailable, the total burden rises to 1.05537 billion won for a two-home owner and 1.22890 billion won for a three-home owner.
◇ "Everyone who would sell already sold" Market already expected heavier capital gains tax
Listings from multiple-home owners, whose tax burden has increased, are expected to come to market by late March to early April, just before the heavier capital gains tax takes full effect. This phenomenon is expected to be particularly pronounced in Seoul and 12 areas in Gyeonggi Province designated as adjustment areas, speculative overheating districts, and land transaction permit zones. In land transaction permit zones, about 15 days for permitting must be factored in, and because the typical transaction period takes two to three months, the window to sell is short. As a result, selling pressure is expected to continue, centered on multiple-home owners with heavy tax burdens.
However, some say the volume of listings by multiple-home owners will not be as large as the government expects. Ham Young-jin, head of Real Estate Research Lab at Woori Bank, said, "Those with heavy property tax burdens may put properties on the market, but there will not be many listings by multiple-home owners."
There are also expectations that after May 9, when the heavier capital gains tax on multiple-home owners takes full effect, a "listing lock-up" will emerge. As multiple-home owners pull back listings, a transaction cliff is expected to deepen.
A head of a licensed real estate agency in Yangcheon-gu said, "Under this administration, we expected the grace period for the heavier capital gains tax on multiple-home owners to end, and everyone who would sell already sold," adding, "There are recent listings from multiple-home owners, but they do not try to sell by cutting prices. If they do not sell by the time the grace period for the heavier capital gains tax ends in May, many landlords say they will pull them back."