"Ultra-Strong Regulations: Not to Curb Housing Prices, but to Collect Taxes?"... Securities Industry Points to 'Hidden Motive' [Real Estate AtoZ]

"Structure Designed to Raise More Taxes for Expansionary Fiscal Policy" ... Securities Industry Sees Move Toward Fiscal Expansion
Acquisition, Capital Gains, and Comprehensive Real Estate Taxes on Multiple-Home Owners Sharply Increased Across Seoul

There have been observations that the October 15 real estate measures, which designated all of Seoul as a regulated area, may serve not only to stabilize the market but also as a policy to secure tax revenue. Analysts suggest that these are not simply demand-suppression measures, but rather complex actions aimed at expanding tax revenue through heavier taxation on owners of multiple homes.

The government announced the "Housing Market Stabilization Measures" on the 15th. All 25 districts of Seoul and 12 areas in Gyeonggi Province are designated as regulated areas, classified as adjustment target areas and speculative overheated districts. The photo shows apartment complexes (apartments, multi-family houses, row houses, officetels) in Gangnam and Gangbuk as seen from the 63 Building in Yeouido, Seoul, on the same day. Photo by Yonhap News Agency

On October 19, Shin Daehyun, a researcher at Kiwoom Securities, stated, "The government does not necessarily want a decline in real estate prices, but rather intends to preemptively block the risk of a sharp rise amid the current phase of interest rate cuts and fiscal expansion." He added, "Given that the government has already indicated an expansionary fiscal stance several times, it is possible to interpret the expansion of regulated areas as a means to secure tax revenue." He explained, "Even the designation of regulated areas alone increases capital gains tax, acquisition tax, and comprehensive real estate tax, and the acquisition tax burden also rises in the case of property gifts."

With this measure, all 25 districts of Seoul and 12 areas in Gyeonggi Province-including Gwacheon, Gwangmyeong, Seongnam (Bundang, Sujeong, Jungwon), Suwon (Yeongtong, Jangan, Paldal), Anyang Dongan, Uiwang, Hanam, and Yongin Suji-have been incorporated as adjustment target areas. For owners of multiple homes in these areas, the acquisition tax rate is raised to 8% for two homes and 12% for three or more homes. The capital gains tax is also increased by 20 percentage points for two homes and 30 percentage points for three or more homes. The exclusion of private rental housing from the comprehensive real estate tax calculation is also removed, further increasing the tax burden. The special long-term holding deduction is completely excluded for owners of multiple homes.

The government also announced that it would further review measures to rationalize the tax system, including property holding and transaction taxes, thereby leaving open the possibility of direct tax increases in the future. Lee Sangkyung, the First Vice Minister of the Ministry of Land, Infrastructure and Transport, stated, "In order to control the issue of owning high-priced homes, the tax system must play a bigger role than financial regulations," publicly mentioning the need to raise property holding taxes. Regarding this, researcher Shin commented, "If the tax burden is passed on to sellers or tenants in the future, additional increases in real estate prices may be inevitable."

The securities industry predicts that these measures will lead to a sharp drop in transactions in the short term. Park Sera, a researcher at Shin Young Securities, said, "A sharp decline in transaction volume is inevitable after the designation of land transaction permission zones on October 20," and analyzed, "If demand for gap investments is effectively blocked by the reduction in loan-to-value (LTV) ratios, overall demand for home purchases will shrink."

However, the overwhelming consensus is that this short-term shock is unlikely to lead to a long-term decline in prices. Lee Eunsang, a researcher at NH Investment & Securities, diagnosed, "Since the supply of new homes in the Seoul metropolitan area will be limited over the next two years, the scope for price adjustments will not be large," and added, "Low interest rates and supply shortages will maintain the downward rigidity of housing prices." Song Yurim, a researcher at Hanwha Investment & Securities, also said, "In the context of global interest rate cuts, liquidity will eventually overcome regulations," and predicted, "After a temporary cooling, a rebound is highly likely."

In the market, there are also predictions of a "balloon effect," with demand shifting to the outskirts of the metropolitan area and non-metropolitan regions. Kiwoom Securities forecasted, "As regulations concentrate on Seoul and its neighboring areas, buying demand will move to outlying regions," and added, "As with previous measures, it is highly likely that demand will shift to non-regulated areas." In the construction industry, this measure is seen as both a crisis and an opportunity. Bae Seho, a researcher at iM Securities, diagnosed, "A slowdown in the pace of reconstruction and redevelopment projects in the Seoul area is inevitable." This could lead to a decrease in new orders and construction starts for builders, putting pressure on their performance.

On the other hand, large construction companies that have diversified their portfolios into non-residential and overseas projects are considered to have stronger defenses. Kim Sunmi, a researcher at Shinhan Investment & Securities, analyzed, "Companies with a high proportion of overseas and non-residential projects, such as Hyundai Engineering & Construction, Dongbu Construction, and Kumho Construction, will be relatively less affected." Kiwoom Securities also highlighted the possibility of improved profitability in projects located in the outskirts of the metropolitan area and non-regulated regions. Shin Daehyun of Kiwoom Securities stated, "Rising sales prices in outlying areas could lead to an increase in construction starts for builders, and previously delayed projects may resume."