Shift Toward Gifting Due to Lower Tax Rates Than Capital Gains Tax
Increase in Activity Centered on Prime Areas in the Three Gangnam Districts
The government is expected to further accelerate the rush to transfer property through gifts, as it has brought up the reinstatement of heavy capital gains tax for owners of multiple homes to encourage them to put their properties on the market. President Lee Jaemyung also stated that he would not prevent the transfer of assets through legitimate gifts.
According to the Court Registration Information Plaza on January 26, during the Moon Jaein administration in March 2018, the number of donations of collective buildings in Seoul (including officetels, apartments, row houses, and multiplex houses) surged to 2,452, more than double the 1,080 cases recorded the previous month. This sharp increase occurred as many people opted for gifts, which have a relatively lower tax rate than capital gains tax, just before the implementation of the heavy capital gains tax in April of that year. The same pattern reappeared right before the reinstatement of the heavy capital gains tax in June 2021, following a temporary suspension. Ahead of the June 2021 implementation, the number of donations increased from 1,859 cases in March to 2,980 in April and 2,013 in May.
Interest in real estate gifting in Seoul remains high. At the beginning of last year, there were only 419 cases, but as concerns about rising property prices and increased tax burdens grew, the number of applications surged to 1,054 last month, a 47% increase from the previous month. This is the highest monthly figure in three years.
The increase in gifting ahead of the heavy capital gains tax is due to the lower tax rate. For those owning three or more homes, the maximum tax rate for selling real estate, including local taxes, is as high as 82.5%. In contrast, the top tax rate for gifts is 50%.
The rush to gift properties is expected to accelerate further after President Lee announced the previous day that he is "not considering any extension" of the temporary exclusion of heavy capital gains tax for owners of multiple homes, which is set to expire in May. It is anticipated that more people will choose to gift their properties early rather than bear the capital gains tax. Additionally, President Lee's remarks that "there is nothing wrong with paying the proper gift tax and transferring a house or anything else" and that "saying 'you must sell a house, not gift it, if you want to dispose of it' goes against the principle of private property rights in a capitalist market economy" are also expected to have an impact.
In particular, analysts predict that the number of gifts will increase in the three Gangnam districts, where high-priced homes are concentrated. These areas, which have a high number of expensive properties and multiple-home owners, have historically been sensitive to gift-related policies. In the three Gangnam districts, the number of gifts jumped by 70%, from 187 cases in November last year to 318 cases the following month. In Jamsil-dong, Songpa-gu, the number of gift applications increased more than fourfold from 10 cases in November last year to 42 cases the following month, while in Banpo-dong, Seocho-gu, the figure nearly tripled from 7 to 20 cases during the same period.
Yoon Sumin, a real estate specialist at NH Nonghyup Bank, commented, "The higher the area, such as the three Gangnam districts, the greater the expectation of future price increases, and there is a perception that these are rare assets that are difficult to repurchase once sold, so people are actively choosing to gift them."
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