Following multiple-home owners, the likelihood has grown that heavier capital gains taxes will also be pushed for operators of purchase-for-lease apartments. The government officially said it is reviewing a related tax overhaul, noting that the benefit excluding purchase-for-lease apartment operators from heavier capital gains taxes is excessive. After giving a window to dispose of purchase-for-lease apartments whose mandatory lease period has ended, the government is expected to apply heavier capital gains taxes. If an improvement plan with these details is included in the tax overhaul set to be announced around July, about 25,000 apartment units could immediately be put up for sale in Seoul alone.
According to the government on the 9th, the Ministry of Strategy and Finance and the Ministry of Land, Infrastructure and Transport, among other real estate-related ministries, also reviewed heavier capital gains tax options for purchase-for-lease apartment operators, following multiple-home owners, at the ministers' meeting on the economy and real estate held on the 8th.
Koo Yun-cheol, Deputy Prime Minister and Minister of the Ministry of Strategy and Finance, said at the meeting, "We are continuing to discuss ways to bring out locked-up listings and have them go to end users," and "We are looking at various options in response to criticism that the perpetual benefit excluding purchase-for-lease apartment operators in designated adjustment areas from heavier capital gains taxes is excessive from the perspective of taxes fairness."
Purchase-for-lease is one type of registered lease business in which existing dwellings are purchased, registered, and rented out. It was introduced in 2017 under the Moon Jae-in administration to allow tenants to live stably. Homes registered as rental housing are subject to a mandatory lease period, and rent increases are capped at 5% per year. In return, they can receive benefits such as exclusion from heavier capital gains taxes and exclusion from aggregation for the comprehensive real estate tax (종부세). However, registration of apartments as purchase-for-lease dwellings was halted in Aug. 2020 amid criticism that tax benefits for lease business operators were excessive.
As the government has officially said it is reviewing improvements to the system, tax benefits for purchase-for-lease are expected to be scaled back. The perpetual benefit excluding purchase-for-lease operators from heavier capital gains taxes is expected to be removed, with a certain grace period followed by a gradual imposition of heavier capital gains taxes. A government official said, "These details are expected to be included in the tax overhaul in the second half."
Also, for apartment listings from purchase-for-lease operators to come to market, supplementary measures such as a grace period for the owner-occupation requirement within land transaction permit zones, similar to listings from multiple-home owners, are expected to be prepared.
If heavier capital gains taxes on purchase-for-lease apartment operators materialize, apartments whose mandatory lease periods end could hit the market as early as the second half of this year or from next year. According to the Ministry of Land, Infrastructure and Transport (MOLIT), as of the end of 2024 there were 43,682 apartment units among purchase-for-lease dwellings in Seoul. Of these, 24,267 units were said to have their mandatory lease periods expire this year. If heavier capital gains taxes become a burden, these units could potentially come onto the market.
Nam Hyeok-woo of the Woori Bank Real Estate Research Institute said, "Given past market prices, it is estimated that registrations for lease business would have been possible in popular areas such as the three Gangnam districts and the Han River belt, so if a deadline is set and the benefit of general capital gains taxation is reduced, there will likely be listings from multiple-home owners seeking to realize capital gains." Nam added, "This could, in the future, act as a driver for listings to come to market in tandem with reduced tax benefits for nonresident single-home owners."
However, Nam also suggested that the volume of apartments from purchase-for-lease operators coming to market may not be as large as expected. Nam said, "Among lease-business properties in regulated areas in Seoul and Gyeonggi, there are likely to be a considerable number of redevelopment apartments where the transfer of association member status is restricted, and there may also be listings with tenants whose lease terms have a long time remaining, so it remains to be seen whether this will lead to a flood of listings."
There are also calls for the government to craft measures to stabilize the jeonsei and monthly rent markets alongside inducing listings from purchase-for-lease operators. Seo Jin-hyung, a professor in the real estate law and administration department at Kwangwoon University, said, "If the tax law is changed to impose heavier capital gains taxes on purchase-for-lease operators and applied retroactively to existing operators, there is a risk of lawsuits," but added, "Even setting that aside, if the government induces listings from purchase-for-lease operators, rental housing will disappear and there could be side effects such as rising jeonsei and monthly rents."
Kim Hyo-seon, chief real estate expert at KB Kookmin Bank, said, "(Inducing listings of purchase-for-lease apartments) seems to be the government's attempt to circulate existing stock in the market as an alternative to a supply shortage," emphasizing, "However, stabilization measures for tenants need to be prepared." Kim added, "Among tenants, there are those who could buy a home if they decide to, as potential buyers, and those for whom purchasing dwellings is impossible, and at present the latter group faces significant psychological anxiety about housing stability."