Gangnam Apartments That Rose First and Fell Last... Will Higher Taxes Break Their Invincibility Myth? [Real Estate AtoZ]

Gangnam Three Districts Fall for First Time in Two Years Despite Seoul-Wide Gains
Impact of Heavier Capital Gains Tax and Lending Regulations
"Once the heavier tax kicks in, the downturn will steepen"

View of an apartment near Seocho-gu, Seoul

The fact that apartment prices in the three Gangnam districts of Seoul (Gangnam-gu, Seocho-gu, and Songpa-gu) and in Yongsan-gu have turned downward for the first time in about two years is interpreted to mean that quite a few owners now judge that it is more advantageous to dispose of their properties quickly, even if that means lowering prices to some extent.

The three Gangnam districts and Yongsan-gu are adjacent to the Han River and lined with high-priced apartments, and are considered the most sought-after areas even within Seoul. The higher the grade of the area, the greater the price increase and the larger the capital gains, so once the heavier capital gains tax on multi-home owners is implemented, the tax burden will inevitably be that much heavier. In Gangnam-gu, the downward trend has been particularly pronounced in Daechi-dong and Cheongdam-dong, and in Songpa-gu in Bangi-dong and Sincheon-dong.

The three Gangnam districts, as the very top-tier locations, have led apartment prices in Seoul. During upswings, price increases started in these areas and the magnitude of the rise was also the largest. According to data compiled by the Korea Real Estate Board, the overall apartment price growth rate in Seoul last year was about 8.71%, but Songpa-gu rose by 20.92%, the highest increase among the city’s 25 districts. Gangnam-gu (13.59%), Seocho-gu (14.11%), and Yongsan-gu (13.21%) also recorded gains above the average. During the 2024 upswing as well, while Seoul as a whole rose 4.45%, Gangnam-gu climbed by a higher 7.05%. Seocho-gu and Songpa-gu also rose 8.44% and 7.43%, respectively.

By contrast, even in downturns the three Gangnam districts either saw prices rise or experienced relatively smaller declines. In 2023, when apartment prices in Seoul fell 2.42%, Gangnam-gu and Seocho-gu still rose 0.47% and 0.68%, respectively. Songpa-gu even climbed 3.51%. In 2022 as well, while Seoul’s overall apartment prices slipped 0.31%, Gangnam-gu and Seocho-gu rose 0.30% and 0.68%. Only Songpa-gu edged down 0.15%.

Unlike the overall apartment sale prices in Seoul, which are still showing a slight upward trend, the fact that the three Gangnam districts and Yongsan-gu have now turned downward first is seen by the industry as being largely due to the reinstatement of heavier capital gains tax on multi-home owners and to tighter lending regulations. On top of this, there is a strong possibility that the burden of holding taxes such as property tax and the comprehensive real estate tax will increase, which is also creating a mood of wanting to sell in advance.

Kim Hyosun, Senior Real Estate Expert at KB Kookmin Bank, said, "With the capital gains tax now finalized and concerns rising over the comprehensive real estate tax, markets such as the three Gangnam districts can see a substantial amount of properties actually coming up for sale," adding, "However, because of loan regulations, sellers need to find buyers who own cash and do not have a home, and such buyers are extremely rare, so deals inevitably end up being concluded as fire sales and other urgent transactions."

There are also projections that as May approaches, when the heavier capital gains tax on multi-home owners will actually take effect, the pace of price declines in these areas could become steeper. Kwon Youngseon, Team Leader at the Real Estate Investment Advisory Center of Shinhan Bank, said, "There are still two months left until the heavier capital gains tax kicks in, and there are owners who say they will sell slowly, but if supply increases sharply in a short period, the magnitude of price declines could deepen," adding, "Sellers are not cutting prices drastically, and buyers are standing on the sidelines expecting prices to fall further, but for actual transactions to be concluded, prices will have to come down more."

However, there is also an assessment that it remains to be seen whether the apartment prices in the three Gangnam districts will lead the overall Seoul market and significantly affect other areas. The outlook is that apartments in the three Gangnam districts are unlikely to drive price falls to the point that other areas will see larger declines. Kim said, "This is not a phase in which prices are falling because of a loss of asset value; rather, listings are coming out due to regulations, and apartment prices are declining because it is difficult to find buyers, so it does not seem likely that the impact will spread to other areas where it is relatively easier to find buyers," adding, "Just as other areas did not necessarily rise when Gangnam went up, we are not seeing a synchronization effect where other areas fall simply because Gangnam is falling."