Low Possibility of Capital Gains Tax Relief... Market Impact Also 'Questionable'

Limitations of Existing Government Measures
Experts Say "Reduction Over Postponement... Radical Measures Needed"

[Asia Economy Reporters Inho Yoo and Chunhee Lee] The ruling party and the government’s active consideration of easing capital gains tax for multi-homeowners appears to be a desperate measure based on the judgment that existing government policies lack a breakthrough plan to dramatically increase housing supply in the short term. There is a sense of urgency that some relief should be given to multi-homeowners to encourage them to sell their properties, thereby curbing soaring housing prices. Since physical supply expansion takes time to have an actual effect, the plan seems to be to put out the fire quickly by increasing the volume of properties circulating in the market.

Let’s Curb Housing Prices by Increasing Multi-Homeowners’ Listings

Within the ruling Democratic Party of Korea, it is understood that there was initially a bold proposal to temporarily reduce the capital gains tax rate for multi-homeowners by 30-40%. However, due to concerns that this might undermine the existing policy stance of ‘thoroughly reclaiming unearned income,’ the plan was ultimately set to extend the scheduled capital gains tax surcharge deferral, originally due to end in late May, by about six months.

Previously, the government had decided that from June 1, multi-homeowners selling houses within designated regulated areas would face an increased surcharge tax rate by 10 percentage points compared to the current rate?20 percentage points for two-homeowners and 30 percentage points for three-homeowners. Accordingly, the highest capital gains tax rate would be 65% for two-homeowners and 75% for those owning three or more homes.

The ruling party and government expect that if the scheduled capital gains tax surcharge on June 1 is postponed or if certain qualified individuals are exempted from the surcharge, a significant number of multi-homeowners will put their surplus homes on the market. Previously, at the end of 2019, when the government strengthened capital gains tax on multi-homeowners, an exception clause was applied that exempted homes held for more than 10 years in regulated areas if sold by June 30 of last year.

Listings Will Increase but Effects Are Limited

The market is cautiously speculating that this plan signals a possible shift in the government and ruling party’s real estate policy. The burden of soaring housing prices potentially negatively affecting the upcoming April 7 Seoul and Busan mayoral by-elections is believed to have played a role. President Moon Jae-in’s emphasis on ‘supply expansion’ in his New Year’s address on the 11th has also sparked speculation that there is tacit agreement among the ruling party, government, and Blue House on easing regulations on multi-homeowners.

However, market reactions remain skeptical. Even before the capital gains tax surcharge enforcement, many multi-homeowners have chosen to gift properties to their children rather than list them on the market. According to the Korea Real Estate Board, nationwide apartment gifts reached 9,619 cases in November last year, the second highest ever. Since the highest capital gains tax rate for multi-homeowners is 62% due to the surcharge, many prefer to hold on or gift properties to their children.

For this reason, market experts point out that a bold measure such as a tax rate reduction is needed rather than just deferring the surcharge. Given that capital gains tax rates have already increased, and some have reduced holding tax burdens through gifting and many are holding on, simply postponing the surcharge enforcement is insufficient to incentivize multi-homeowners to sell.

Lee Eun-hyung, Senior Researcher at the Korea Institute of Construction Policy, said, "Even if capital gains tax is eased, unless it is at a significant level, it will be difficult to substantially increase the volume of listings and produce meaningful results," adding, "It could rather have a negative effect by reducing listings in the rental market."

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