"Even With Tax Breaks, No One Is Buying"...Local Home Prices Keep Falling Despite Incentives [Real Estate AtoZ]

Government Adds Nine New Regions to Second Home List
Tax Benefits Eased, Including Acquisition, Capital Gains, and Property Holding Taxes
Sacheon Sees Only 0.07% Price Increase
Benefits Apply Only to Buyers from Outside the Capital Area

The government has added nine areas of interest experiencing population decline to the list of designated regions under the Second Home (secondary residence) program and has significantly eased the requirements for tax benefits. However, actual transaction volumes and price changes remain minimal. While there is always a time lag in market response, analysts say that the tangible effects are still lacking at this stage.

Scenic view of Inje-eup, Inje-gun. Inje-gun. Photo by Yonhap News

According to the "Construction Investment Reinforcement Plan Focused on Local Areas" announced by the government on August 14, nine new locations-Gangneung, Sokcho, Gyeongju, Tongyeong, Iksan, Gimcheon, Sacheon, Inje, and Donghae-have been newly included as Second Home designated areas in addition to the existing regions with population decline. Homes in these newly designated areas are now eligible for tax reduction benefits, such as up to 50% off acquisition tax and special provisions for capital gains and property holding taxes. The eligibility criteria for these benefits have been significantly relaxed, with the official appraised value threshold raised from 400 million won to 900 million won, and the acquisition price limit increased from 300 million won to 1.2 billion won.

According to the Korea Real Estate Board on August 31, two weekly market trend reports (on the 21st and 28th) have been released since the additional designation of the nine Second Home areas. Of these nine regions, the Real Estate Board publishes price statistics for eight, excluding Inje. Among these eight, only Sacheon saw a price increase (a cumulative 0.07% over two weeks). Gimcheon remained unchanged (0.00%), while the other five regions experienced declines: Iksan (-0.31%), Sokcho (-0.21%), Gyeongju (-0.11%), Donghae (-0.09%), Tongyeong (-0.08%), and Gangneung (-0.04%).

Experts explain that since real estate transactions can take several months to complete-including contract signing, reporting the actual transaction, and final payment-the policy’s effects are unlikely to be immediately reflected in prices. However, they also point out that transaction volumes are already so depressed that it is difficult for external demand to shift in the short term.

In particular, the Second Home program is a policy premised on attracting external demand, but with the current market conditions, purchases of multiple homes are virtually blocked, making its effectiveness limited. The policy applies benefits when residents of the Seoul metropolitan area purchase a second home in a designated Second Home area outside the metropolitan region. However, buyers purchasing for actual use within the Second Home area itself do not receive any benefits.

Yang Jiyeong, Senior Specialist at Shinhan Premier Pathfinder, stated, "Tax benefits can stimulate investment demand during a real estate boom, but in a market as subdued as it is now, end-users inevitably take the lead." She added, "Without structural factors such as local job creation and population inflow, it is difficult to expect a price rebound based solely on tax benefits." She continued, "At present, the formula 'Second Home = revitalization of local real estate' is unlikely to hold. For the policy to be effective in terms of prices, measures to revive the purchasing sentiment of local end-users, not just external investors, must be implemented in parallel."