Despite Property Tax Bombshell... Gangnam Rich Likely to 'Hold On' Rather Than Sell

Expectations to Offset Property Holding Tax with Long-Term House Price Increases
Gifting to Children or Establishing Corporations Instead of Selling
Possibility of Holding Tax Increase Being Passed to Tenants
However, Prolonged COVID-19 and Economic Recession Remain Variables

[Asia Economy Reporter Moon Jiwon] Experts predict that despite the sharp increase in holding tax burden due to the rise in publicly announced prices, the number of urgent sales of high-priced apartments in the Gangnam area will not increase significantly. The prevailing view is that there will still be no large-scale short-term housing price adjustment, and many homeowners are expected to hold on rather than sell.

In the market, it is believed that many multi-homeowners have already cleared their listings during the government's process of strengthening holding and transaction tax systems. Especially with the Bank of Korea lowering the base interest rate, reducing loan interest burdens, there remains hope that if the COVID-19 pandemic ends early, housing price increases could offset the holding tax burden.

Woo Byungtak, team leader of Shinhan Bank Real Estate Investment Advisory Center, forecasted, "Listings will slightly increase until the end of June, the grace period for capital gains tax surcharges, due to some marginal owners struggling with holding tax burdens, but the proportion will not be large." He further predicted that multi-homeowners are more likely to choose tax-saving methods such as burden-bearing gifts to their children or establishing corporations rather than selling. Establishing a corporation allows them to reduce holding tax burdens while continuing to hold real estate.

Park Won-gap, senior real estate specialist at KB Kookmin Bank, also analyzed, "Although tax-saving listings are expected to increase somewhat, it will not surge enough to cause market stagnation." Ham Ji-young, head of Zigbang Big Data Lab, also anticipated, "It is unlikely to transition into a rapid surge of listings at a fire-sale level."

Frontline real estate agencies share similar views. A representative from A Real Estate in Daechi-dong, Seoul, explained, "For apartments with publicly announced prices around 1.5 billion KRW, holding tax increases by about 2 million KRW, but that alone will not prompt owners to list their homes. Multi-homeowners are more likely to sell properties in outlying areas before those in Gangnam."

There are even concerns that the increased holding tax burden may be passed on to tenants. Landlords are expected to raise jeonse (long-term deposit lease) prices and convert part of the increased jeonse into monthly rent to reduce the increased tax burden. While the interest rate on jeonse deposit loans from commercial banks is in the high 2% range annually, the rate applied when converting deposits to monthly rent is at least 5%, which inevitably increases tenants' burdens by that difference.

Although there is a capital gains tax surcharge grace benefit until the end of June, it is limited to multi-homeowners who have held homes for over 10 years, so experts expect the effect on increasing listings to be limited.

Experts point out that the longer-term course of the COVID-19 pandemic is a bigger variable for the market than holding taxes. If the domestic and international economic recession prolongs, the real estate market is highly likely to be directly affected.

Ahn Myung-sook, head of Woori Bank Real Estate Support Center, explained, "There is not much concern at the moment, but if the recession causes companies to collapse and problems arise in households or finance, the impact will be significant. Although there is confidence based on the continued learning effect that housing prices will rise, the atmosphere could change if the recession prolongs."

This content was produced with the assistance of AI translation services.