Four Months Ahead, Lee Says "No Extension of Capital Gains Tax Exemption for Multi-Home Owners"...Concerns Over Supply Shortage After Reinstatement [Real Estate AtoZ]

Grace Period for Heavy Capital Gains Tax on Multi-Home Owners Ends in May
Capital Gains Tax Rate for Three-Home Owners to Reach Up to 75%
Tax on 1 Billion Won Gain for Three-Home Owners More Than Doubles
Short-Term Spike in Listings Expecte

As President Lee Jaemyung publicly declared that he is "not considering any extension of the capital gains tax exemption for owners of multiple homes, which expires on May 9," the calculations for the 1.28 million multi-homeowners in the Seoul and Gyeonggi regions have become increasingly complex. While there may be a temporary increase in properties for sale until the end of the capital gains tax relief period, analysts warn that, due to multiple factors such as land transaction permit zones and high interest rates, the end of the exemption is likely to result in a significant decrease in available properties for sale.

On January 23, the market interpreted President Lee's remarks as an intention to increase housing supply by encouraging multi-homeowners to sell before higher taxes are imposed. On X (formerly Twitter), President Lee stated, "The special deduction for long-term ownership blocks properties from entering the market and encourages speculation." This signals his intention to stop providing tax breaks for homes held as investments, even if they have been owned for a long time.

The capital gains tax surcharge for multi-homeowners adds 20 percentage points to the basic rate for those with two homes, and 30 percentage points for those with three or more homes. The basic rate ranges from 6% to 45%, depending on the taxable base. Since May 2022, the government has temporarily suspended this surcharge, and during this period, the higher tax rates have not been applied regardless of whether the property is in a regulated area. The special deduction for long-term ownership, which can reduce the capital gains tax by up to 80% for properties held for more than 10 years, continues to apply under the standard rules.

If the capital gains tax surcharge is reinstated, owners of three or more homes could face tax rates as high as 75%. For example, if a two-homeowner sells a property purchased for 1 billion won after holding it for 10 years at a price of 1.5 billion won, the capital gains tax would rise from 133.6 million won to 273.1 million won. For those with three or more homes, the tax would more than double, from 133.6 million won to 322.85 million won. If a two-homeowner sells a property bought for 1 billion won after 15 years at a price of 2 billion won, the tax would increase from 257.55 million won to 580.35 million won. Under the same conditions, a three-homeowner would see their tax rise from 257.55 million won to 682.8 million won.

Concerns About a Sharp Decline in Listings After May 9

Given the possibility of a significant tax burden, it is expected that some multi-homeowners will put their properties on the market before May. However, most analysts believe that after the exemption ends, the number of properties for sale will plummet, potentially driving prices even higher.

Kim Hyosun, Chief Real Estate Specialist at KB Kookmin Bank, explained, "Many properties owned by multi-homeowners have already been on the market, but as the sunset date approaches, efforts to sell may accelerate. In order to sell properties that have not yet been traded, sellers will need to offer price advantages compared to alternatives, which could lead to price adjustments."

Some analysts argue that the announcement of the end of the capital gains tax exemption came too late to have a significant effect. Kim Jaekyung, Head of Tumi Real Estate Consulting, said, "If the announcement had come around December last year, more urgent sales could have helped stabilize the market. Now, there isn't enough time to sell, and more effort will be needed to dispose of properties quickly. After May 9, price increases could become even steeper."

Ahn Sungyong, Real Estate Specialist at NH Nonghyup Bank, noted, "The short time remaining until May, high interest rates, and land transaction permit zones are all variables. The number of properties for sale may not increase as much as the government expects. In the past, those who sold quickly when the exemption ended often felt they incurred losses, so if listings dry up after May 9, a transaction freeze or further market distortion could occur."

"Multi-Homeowners Should Sell Properties With Smaller Gains First"

Yonhap News Agency

Experts unanimously advise that multi-homeowners should start by selling properties with smaller capital gains in preparation for the end of the exemption. In the long term, a possible increase in property holding taxes is also a factor to consider.

Kim said, "When the capital gains tax surcharge is reinstated, three-homeowners will face a maximum tax rate of 75%, plus a 10% local income tax, resulting in an effective rate of up to 82.5%. The priority should be to sell properties with smaller gains first, and to ensure that properties with larger gains are eligible for exemptions. If the gains are similar, properties in outlying areas should be sold first."

Yang Jiyoung, Senior Specialist at Shinhan Premier Pathfinder, advised, "Since property holding taxes could also rise in the long term, it is wise to focus on holding one high-quality property. The best strategy is to quickly sell properties with smaller gains, while holding on to those in prime locations."