The heavier capital gains tax on multiple-home owners took full effect on the 10th. In 12 regulated areas in Seoul and Gyeonggi Province, where sales by multiple-home owners are subject to the surtax, the amount of capital gains tax due is expected to increase by as much as hundreds of millions of won. As multiple-home owners with heavy tax burdens have already trimmed their holdings, the remaining multiple-home owners are expected to dig in despite the tax load. There are also concerns that a "lockup of listings" by multiple-home owners will emerge and intensify instability in the dwellings market.
According to the Ministry of Land, Infrastructure and Transport and the real estate industry on the 10th, from that day the capital gains tax surtax applies to multiple-home owners in regulated areas, including 25 districts in Seoul and 12 areas in Gyeonggi Province.
Under the current system, the base capital gains tax rate is 6%–45%. In regulated areas, two-home owners face a 20-percentage-point surcharge, and owners of three or more homes face a 30-percentage-point surcharge. Including the 10% local income tax, the effective rate for owners of three or more homes rises to as high as 82.5%.
With the surtax, multiple-home owners are expected to face a sharp increase in capital gains tax when selling a home. When the surtax applies, the long-term holding special deduction also becomes unavailable, meaning some could pay hundreds of millions of won more in taxes.
According to a capital gains tax surtax simulation by tax specialist Park Dam at the Inheritance and Gift Center of Hana Bank's Living Trust Consulting Department, if a two-home owner bought Jamsil Els in Songpa District, Seoul, for 1.7 billion won in Jul. 2022 and sold it for 3.1 billion won, the capital gains tax (excluding local income tax) would rise from 525.13 million won to 842.43 million won. For a three-home owner, the capital gains tax would be 982.18 million won.
Assuming a purchase of Mok-dong New Town Complex 7 in Yangcheon District, Seoul, for 820 million won and a sale after a 10-year hold, the capital gains tax before the surtax would have been 501.73 million won. Going forward, a two-home owner would owe 959.43 million won, and a three-home owner would owe 1.11718 billion won in capital gains tax.
With the tax burden rising sharply, there are projections that multiple-home owners will find it hard to sell the dwellings they hold. Nam Hyeok-woo of the Woori Bank Real Estate Research Institute said, "It is clear that those who own several apartments will see a steep increase in tax burden, so among multiple-home owners, those who expected a weak real estate market sold dwellings and chose to become one-home owners." Nam added, "Multiple-home owners no longer have many options. Now it has become a situation where they cannot sell even if they want to," and said, "For three-home owners, with an effective rate of 82.5%, selling will be difficult."
Despite the outlook for higher capital gains tax burdens, multiple-home owners who have not sold appear to have already set up responses to future property tax hikes through asset rebalancing. There are cases of raising monthly or jeonse rents for apartments or cashing out of apartments to buy properties in redevelopment project areas. Some multiple-home owners are also expected to continue considering gifts, household splits, or postponing household mergers if the property tax burden grows.
A real estate expert said, "In the case of three-home owners, many sold one and chose a two-home owner position. Instead, they switched one of the two dwellings from jeonse to monthly rent and adjusted it to receive the highest possible monthly rent as a measure against property taxes." The expert added, "Some former multiple-home owners now hold only one apartment while buying a move-in right," and said, "Many also buy villas in redevelopment areas that are nearing relocation or are fairly advanced, to rebalance their real estate asset. In such cases, the property tax burden can be partially reduced."
If listings by multiple-home owners lock up in this way, instability in the dwellings market could deepen. While the overheated real estate market could take a breather due to the listing lockup, some point out it could lead to price increases after a certain period. According to the Korea Research Institute for Human Settlements (KRIHS) study "Analysis of policy response behavior of market participants to real estate market policies and evaluation measures," when the capital gains tax rate for multiple-home owners rises by 1%, the change rate of apartment sales transactions falls by 6.879%, while the change rate of sales prices increases by 0.206%. In simple terms, transactions decreased, but prices rose.
Seo Jin-hyeong, a professor in the Department of Real Estate Law at Kwangwoon University, said, "As the capital gains tax surtax on multiple-home owners takes full effect, listings will plunge and transactions will likely decrease," and said, "Even if some listings appear, they are likely to come from non-core areas rather than core areas, which could again deepen regional polarization."
However, given the possibility of tax reform and additional lending regulations, some multiple-home owners may be unable to hold out over time.
Kim Hyo-seon, chief real estate specialist at KB Kookmin Bank, said, "After the end of the grace period for the capital gains tax surtax on multiple-home owners, the decline in listings in the Seoul apartment market is highly likely to accelerate," but added, "In the second half, the character of the market could change. Stronger variables than the capital gains tax are the property tax and financing costs." Kim added, "After the second half, the market could shift to a phase where listings increase not because owners want to sell, but because they find it hard to hold on."