President Lee Jae-myung said, "It's strange that as long as you register as a rental business operator, you can buy up as many houses as you want," aiming his remarks at rental business operators after multi-homeowners. As remarks continued indicating an intent to withdraw the "exemption from heavier capital gains tax" for purchase-type registered rental business operators, dwellings owned by rental business operators whose mandatory rental periods end this year are expected to come onto the market. However, if non-apartments such as low-rise apartments and multi-household dwellings as well as apartments are included in this round of heavier capital gains tax, the non-apartment market is expected to shrink further.
On the afternoon of Feb. 9, President Lee wrote on X (formerly Twitter), "After the mandatory rental period passes, property tax and comprehensive real estate tax reductions disappear, but the 'exemption from heavier capital gains tax for multi-homeowners' is set to continue," adding, "There is also the view that there's no need to grant permanent preferential treatment just because they were once registered rentals, even though they are the same multi-homeowners." He continued, "A certain period for disposal should be given, but after the rental period ends, various tax regimes for registered rental dwellings should be the same as for general rental dwellings for fairness."
Specifically, President Lee suggested that immediately scrapping the preferential exemption from heavier capital gains tax on registered rental dwellings would be too burdensome, so it should be abolished after a set period, for example one year, or phased out gradually. Lee said, "There is also an opinion to limit the target to apartments only," adding, "If registered rental multi-homeowner dwellings that have passed the mandatory rental period and the set exemption period from heavier capital gains tax come onto the market like general multi-homeowner properties, it would have a supply effect of hundreds of thousands of units."
The previous day as well, Lee wrote, "If we allow one person to buy up hundreds of houses, even if we build and supply tens of thousands of houses, it will inevitably be insufficient," adding, "I am asking for opinions on whether to continue allowing purchase-type rentals rather than construction-type rentals."
Purchase-type registered rental business operators acquire and register existing dwellings to rent them out, a system introduced in 2017 under the Moon Jae-in administration to allow tenants to live stably. Homes registered as rental dwellings are assigned a mandatory rental period, and rent increases are capped at 5% per year. At the time of introduction, the government encouraged multi-homeowners to register as rental business operators and offered tax benefits, but the benefits were scaled back after criticism that they were excessive. Registration of purchase-type rental dwellings for apartments was halted in Aug. 2020. Short-term registered rental dwellings were abolished, then revived last year only for non-apartments such as multi-household dwellings and low-rise apartments.
With President Lee's remarks, the exception to heavier capital gains tax applied to registered rental business operators is increasingly likely to end in stages. If heavier capital gains tax on rental business operators is realized, apartment purchase-type rental business operators whose mandatory rental periods end as early as the second half of this year will have to dispose of dwellings within one to two years to reduce their tax burden. In Seoul alone this year, nearly 25,000 registered rental apartments will see their mandatory rental periods end. When the mandatory rental period ends, dwellings held by rental business operators become held in the form of personal ownership, and the president's remarks are seen as targeting the release of this supply.
A real estate expert who requested anonymity said, "Inventory that was tied up as long-term registered rentals under rental business operators in 2018 will start to come out this year, and this is interpreted as an intent to allow it to come out as apartment supply in the short term."
However, concerns are being raised that if the exception to heavier capital gains tax is applied to non-dwelling registered rental business operators as well, the contraction of the non-dwelling market could accelerate. If heavier capital gains tax is imposed on non-apartment purchase-type rental business operators, the non-dwelling market, where demand has already declined due to incidents such as jeonse fraud, could shrink further. Even if rental business operators put low-rise apartments and multi-household dwellings on the market due to tighter regulation, there may be no buyers, resulting in "supply without demand."
Kim Hyo-seon, chief real estate expert at KB Real Estate WM Promotion Department, said, "Korea does not yet have sufficient public rental supply, so rental business operators clearly play a role in supplying rental dwellings," adding, "For non-apartments, there is realistically little purchase demand for first-time home ownership, and transactions are already weak. If regulations on non-apartment registered rental business operators are tightened, the role of the non-apartment market could be reduced."
Lee Chang-mu, a professor in the real estate department at Hanyang University, said, "Among the various ways to stabilize the rental market, I believe the most desirable is to grow corporate private rental housing. In the United States, for example, more than half of private rental housing is corporate," adding, "In the market, there are various roles such as building, renting, and holding, and eliminating the role of rental business operators could have side effects."