As President Lee Jae-myung nailed down May 9 as the end date for the temporary suspension of heavier capital gains taxes on multi-homeowners, the real estate market is roiling. With expectations that only "contracts on May 9" will be exempt from the heavier tax, multi-homeowners have started crunching the numbers. In major real estate markets such as Banpo and Nowon in Seoul, sellers and buyers are engaging in a game of brinkmanship, with the "last possible line" to complete a transaction projected for mid-April.
In key complexes in the Gangnam area, listings with asking prices cut by hundreds of millions of won are already emerging. On the morning of the 26th, an employee A at a real estate agency in Banpo-dong, Seocho-gu, Seoul, said, "As word spreads that heavier capital gains taxes on multi-homeowners will be reinstated, asking prices for Banpo apartment sales have fallen by about 200 million to 300 million won from previous levels," adding, "For an 84-square-meter exclusive unit at THE H Raemian La Classe, the asking price has been adjusted from 4.8 billion won to 4.5 billion won, and an 84-square-meter exclusive unit at Dong-A Apartment in Jamwon-dong has been adjusted from 3.65 billion won to 3.4 billion won."
In particular, many reacted that time is tight to complete a transaction before the end of the suspension, as the government, through the 10·15 measures, designated all of Seoul as a "land transaction permit zone." In addition, with many sellers seeking to dispose of apartments before June 1, the reference date for the property holding tax, the timing for settling the balance is expected to come even sooner.
A said, "It usually takes three weeks from applying for a land transaction permit at the district office to getting approval," explaining, "To meet the contract deadline of May 9, the day before the end of the suspension of the heavier capital gains tax, buyers and sellers need to at least meet by mid-April to sign a memorandum and submit the permit application."
If the system of heavier taxation is reinstated, the tax burden felt by multi-homeowners will grow. When the suspension ends, an additional 20 to 30 percentage points are added to the base capital gains tax rate (6%–45%). Two-home owners face an additional 20 percentage points, and those with three or more homes face an additional 30 percentage points. Including local income tax, the top rate for three-home owners can surge to as high as 82.5%.
There is also discontent that the "special long-term holding deduction," which deducts a portion of capital gains after holding real estate for a certain period, will disappear, meaning homeowners will effectively have little cash left in hand after selling.
Given the situation, reports say more cases are emerging in the Gangnam area of people transferring homes to their children through compensated sales. An employee B at a real estate agency in Sinsa-dong, Gangnam-gu, Seoul, said, "Rather than selling and losing it all to taxes, many say they would rather transfer it to their children in the form of a sale."
The situation is more complicated in mid- to low-priced apartment markets such as Junggye-dong in Nowon-gu, Seoul. In land transaction permit zones, there is an owner-occupancy requirement, making transactions of "gap investment" listings with jeonse tenants impossible.
An employee C at a real estate agency in Junggye-dong, Nowon-gu, Seoul, said, "Most multi-homeowner listings have tenants living in them, and if an agreement with the tenant cannot be reached, the home cannot be vacated, so it cannot be sold at all," adding, "Only homes where the owner lives or that are entirely empty can be sold, and securing even a contract, let alone a balance payment before May, is difficult."
C added, "Right now, asking prices for 49-square-meter exclusive units at Mujigae Apartment and Green Apartment in Junggye-dong are in the high-600 million won range," noting, "Transactions were done in the low-500 million won range before the land transaction permit zone restrictions, but after the restrictions blocked gap investments and listings available for actual occupancy became scarce, prices jumped into the 600 million won range."
The real estate industry expressed concern that while this measure could induce an increase in listings in the short term, it could exacerbate supply shortages and polarization in the long term. In fact, inquiries from buyers, which had been gradually reviving since the start of the year, have increased further, but expectations that more urgent listings will come to market due to the notice of reinstating the heavier capital gains tax are preventing these from turning into actual transactions.
Representative D, who runs a real estate agency in Banpo-dong, Seocho-gu, Seoul, said, "The government pulled out the card of reinstating heavier capital gains taxes to get existing dwellings onto the market, but once the grace period passes, listing lock-in will worsen again," forecasting, "In the end, the preference for a single 'smart one in Gangnam' will only become clearer, and asset polarization will inevitably intensify."