The Share of Apartment Exchange Transactions Increased Again... Temporary Two-Homeowners Shift Strategy as Sales Fail

July Exchange Transactions Account for 0.15%
First Time Exceeding One Decimal Place
Mostly Dominated by the Seoul Metropolitan Area
Temporary Two-Homeowners Face Difficulties in Sales
Shift to Capital Gains Tax Exemption Sought

Real estate stock photo / Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Hwang Seoyul] "Incheon OO Apartment Complex X, 26 pyeong, 3 rooms, 2 bathrooms, royal floor. Please contact me if interested" (Excerpt from an open KakaoTalk chat about exchange transactions)

As buying demand has frozen, cases of choosing exchange transactions in apartment deals are increasing. It appears that temporary two-homeowners, who find it difficult to sell their apartments within the deadline to enjoy capital gains tax exemption benefits, are turning to alternative methods instead of sales.

According to the Korea Real Estate Board's apartment transaction statistics by transaction type on the 22nd, the proportion of exchange transactions in total transactions in July reached 0.15%, marking an all-time high. This is also the first time the proportion has exceeded the first decimal place. The share of exchange transactions, which was only 0.02% in January, rose to 0.09% in April, then seemed to decline, but hit a new peak again in July. The volume of exchange transactions was 65 cases, the second highest since December 2020 (97 cases).

By region, the metropolitan area accounted for most of the transaction volume. Gyeonggi had the highest number with 28 cases, followed by Seoul with 15 cases, and Incheon with 6 cases. The next highest regions were ▲Busan 4 cases ▲Chungnam 3 cases ▲Gyeongnam 3 cases ▲Gangwon 2 cases ▲Gwangju 1 case ▲Chungbuk 1 case ▲Jeonbuk 1 case ▲Ulsan 1 case. No apartment exchanges occurred in Sejong, Daegu, Daejeon, Jeonnam, Gyeongbuk, or Jeju.

The reason for the increase in the proportion of exchange transactions lies in the contraction of sales transactions. In particular, temporary two-homeowners, facing a cliff in sales transactions and unable to enjoy capital gains tax benefits within the deadline, are turning to exchange transactions. The sales transaction volume in the same month (21,836 cases) was the lowest since January 2013 (16,968 cases).

Currently, temporary two-homeowners who own both previous and new houses in regulated areas are eligible for capital gains tax exemption if they become single homeowners within 2 years from the acquisition date of the new house (3 years if holding in non-regulated areas). Exchange transactions are considered as selling first and buying later, so they also qualify for capital gains tax exemption. However, acquisition tax may be considered as acquiring two homes in some cases, which could lead to additional taxation, so caution is needed. Kim Ji-young, a tax specialist at NH Nonghyup Financial, explained, "Since there is no buying demand itself, those who find it difficult to sell within 2 years after acquiring a new house are exchanging houses among themselves to receive tax exemption."

In fact, many inquiries from temporary two-homeowners have been posted on real estate community sites and open KakaoTalk chat rooms for real estate exchanges. One open chat room, which was created at the end of January, currently has about 1,300 members, with real-time inquiries about exchange transactions. Even some single homeowners are considering exchange transactions amid the transaction freeze. A member of a real estate community site asked, "I want to move, but transactions are not happening, so it's frustrating," and inquired, "Are there cases of apartment exchange transactions between single homeowners who actually live in their homes?"

Although exchange transactions are legal, since they are often discussed in real estate communities or KakaoTalk open chat rooms, experts recommend consulting with related professionals when making transactions. Woo Byung-tak, head of the real estate team at Shinhan Bank WM Consulting Center, said, "If the parties arbitrarily set prices and exchange, even if reported, if the difference between the market price and the exchange transaction price exceeds 5%, the capital gains amount itself may be denied," and suggested, "To avoid such issues, it is necessary to discuss with experts, including obtaining an official appraisal."