High-End Housing Gap Investors with Low Jeonse Refund Ability Likely to Face 'Exit Strategy'
[Asia Economy Sejong=Reporter Kwon Haeyoung] It has been revealed that a single-homeowner who purchased a high-priced house worth about 1.5 billion KRW and then leased it under a jeonse (long-term deposit lease) contract can reduce their capital gains tax burden by more than 220 million KRW if they utilize the government's 'Win-Win Landlord' system and sell the house for 2.5 billion KRW. Accordingly, homeowners who previously purchased high-priced houses with jeonse but were unable to move in due to inability to return the jeonse deposit are expected to actively use the Win-Win Landlord system.
On the 23rd, Asia Economy conducted a capital gains tax simulation on the Win-Win Landlord system. It analyzed that Mr. A, a single-homeowner who purchased a 1.5 billion KRW house in Seoul in January 2019 and simultaneously leased it under jeonse, would be considered to have met the two-year actual residence requirement for capital gains tax exemption if he utilizes the Win-Win Landlord system and sells the house for 2.5 billion KRW in March 2025. In this case, he would only need to pay a total capital gains tax of 145.95 million KRW. The special long-term holding deduction (Jangteuk Gongje) also applies, granting a 4% annual deduction for a total of 24% over the six-year holding period. Under the special long-term holding deduction, if the owner has never actually resided in the property, only the deduction based on the holding period is applied.
Under the current system, Mr. A would not meet the actual residence requirement and would have to pay a total capital gains tax of 367.62 million KRW on a capital gain of 1 billion KRW (applying a 42% tax rate and a 2% annual deduction for long-term holding). By using the Win-Win Landlord system, he can save 221.67 million KRW. This assumes that after the tenant exercised the contract renewal right and the lease expired in January 2023, Mr. A signed a new lease contract with a new tenant, raising the jeonse deposit by only 5% compared to the previous contract.
The government's expanded tax support under the Win-Win Landlord system grants capital gains tax exemption benefits even if the two-year actual residence requirement is not met, provided that the monthly rent or jeonse deposit is increased by no more than 5% until the end of 2024. Currently, if the rent is increased by only 5%, the actual residence requirement is waived for only one year, resulting in a 'half benefit,' but this will be extended to two years. This means that homeowners no longer need to evict tenants and move in themselves to receive capital gains tax exemption benefits. However, while it does not matter if the owner was a multi-homeowner at the time of leasing, they must be a single-homeowner at the time of selling the property.
The Win-Win Landlord system is expected to significantly reduce the capital gains tax burden on high-priced houses. Accordingly, investors who previously purchased high-priced houses through gap investment but could not move in due to inability to return the jeonse deposit are expected to actively utilize the Win-Win Landlord system. For investors who were burdened by capital gains tax when selling and unable to move in due to inability to return the jeonse deposit, the incentive to participate in the Win-Win Landlord system is substantial. Multi-homeowners planning to convert to single-homeowner status are also expected to focus on selling high-priced houses last to receive capital gains tax exemption benefits. Consequently, there is a considerable possibility that many mid- to low-priced properties in suburban areas will be released in the future.
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