Relaxation of Capital Gains Tax for Single-Homeowners... Insufficient to Resolve Transaction Drought

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Amendment Expected to Pass in the National Assembly's Budget Committee

Single-Homeowner Threshold Raised from 900 Million KRW to 1.2 Billion KRW

Housing Market Transactions Between 900 Million and 1.2 Billion KRW Expected to Revive

May Encourage Short-Term Listing Freeze

[Asia Economy Reporters Minyoung Kim, Hyunju Lee] As the political sphere raises the capital gains tax exemption threshold for single-homeowners from the current 900 million KRW to 1.2 billion KRW, the housing market, which had been subdued due to excessive tax burdens, is expected to breathe somewhat easier. The raised threshold is likely to invigorate transactions of homes priced between 900 million and 1.2 billion KRW by reducing capital gains tax burdens. However, since the tax relief is limited to single-homeowners, the likelihood of increased listings from multi-homeowners is low, and some express concerns that expectations for further government deregulation may instead deepen the wait-and-see attitude.

◆ The ‘1.2 Billion KRW’ Threshold Already Mid-Low Price... Late Standard Adjustment = The National Assembly's Planning and Finance Committee is scheduled to hold a plenary session on the 30th to pass the amendment to the Capital Gains Tax Act agreed upon by ruling and opposition parties at the tax subcommittee the day before. The revision raises the capital gains tax exemption threshold for single-homeowners from 900 million KRW to 1.2 billion KRW. However, provisions regarding the differential long-term holding special deduction based on capital gains and the starting point for counting ownership for single-homeowners were excluded from this agreement.

Ryu Seong-geol, the opposition party's secretary of the Budget Committee, said at the People Power Party's floor strategy meeting that "Due to the government's failure in real estate policy, real estate prices surged, and there was a strong public demand to realistically adjust the capital gains tax exemption threshold." Last month, the average apartment sale price in Seoul surpassed 1.2 billion KRW (according to KB Kookmin Bank's Live On), but the current high-priced housing standard has been maintained since 2008, failing to reflect recent inflation and housing price increases.

◆ Breathing Room for Transactions of Homes Priced Between 900 Million and 1.2 Billion KRW... = If the amendment passes, it will apply to homes sold from January 1 of next year. The real estate market expects that since single-homeowners have been waiting for the expansion of capital gains tax exemption, the recently subdued transaction market will somewhat revive. In particular, transactions of homes priced between 900 million and 1.2 billion KRW, the newly adjusted range, are expected to become more active.

According to the Seoul Real Estate Information Plaza, apartment transactions in Seoul in October totaled 2,304, a 47% decrease compared to a year ago. Park Won-gap, senior real estate specialist at KB Kookmin Bank, predicted, "While transactions in the 900 million to 1.2 billion KRW range may find some liveliness, from January next year, the strengthened Debt Service Ratio (DSR) regulations will limit upward moves for single-homeowners."

◆ Effect on Alleviating Transaction Drought is Uncertain = There are concerns that, in the short term, the amendment may further encourage a transaction drought. Since the capital gains tax exemption benefit applies only to transactions from January 1 next year, single-homeowners might delay selling until early next year. Some also believe that even with eased capital gains tax, the burden of various taxes and fees related to switching homes will make it difficult for existing homeowners to actively engage in transactions.

Yoon Ji-hae, senior researcher at Real Estate 114, said, "Due to loan regulations and additional costs, re-entering Seoul apartments has become difficult, so not many single-homeowners are expected to choose to sell." She added, "With People Power Party presidential candidate Yoon Seok-yeol proposing the abolition of capital gains tax and the presidential election variable remaining, the wait-and-see attitude is likely to deepen until the election."

Seo Jin-hyung, president of the Korea Real Estate Society (professor at Gyeongin Women's University), said, "Since the policy is limited to single-homeowners, its impact on the market will be minimal," adding, "To resolve the listing freeze phenomenon, the government needs to ease the capital gains tax surcharges on multi-homeowners who actually hold many listings."