The Paradox of Heavy Capital Gains Tax... Seocho Also Surpasses 20 Million Won per 1㎡

Following Gangnam, the second crackdown on multi-homeowners in Seoul
Ultimately driving up prices of smart single homes
Expected shortage of listings and deepening transaction freeze from June

[Asia Economy Reporter Onyu Lim] The average sale price per 1㎡ of apartments in Seocho-gu, Seoul, has surpassed 20 million KRW. It is the second highest in Seoul after Gangnam-gu. Although the government tried to stabilize housing prices by tightening regulations on multi-homeowners through increased capital gains tax, critics argue that this paradoxically only boosted the value of a ‘smart single property.’

According to KB Real Estate’s housing price trends on the 1st, the average price per 1㎡ (exclusive area) of apartments in Seocho-gu in May was 20.181 million KRW. This is a 1.17% increase from 19.949 million KRW in the previous month. This means that buying an 84.9㎡ apartment in this area costs an average of 1.71336 billion KRW. Even a single room measuring 3m by 3m amounts to 181.62 million KRW. The perceived prices in major complexes in this area are much higher. The market price of an 84.9㎡ apartment in Banpo-dong’s Banpo Xi is about 3.1 billion KRW, nearly double the average price. Seocho-gu is the second district in Seoul to exceed an average apartment price of 20 million KRW per 1㎡, following Gangnam-gu. Gangnam-gu recorded 23 million KRW in April and 23.102 million KRW in May.

The rising housing prices in the Gangnam area are seen by industry experts as evidence that the government’s policy to stabilize prices by encouraging multi-homeowners to sell has ultimately failed. The government had planned to strengthen capital gains tax and comprehensive real estate tax starting in June, with a six-month grace period to induce sales by multi-homeowners. However, despite the looming tax hikes, multi-homeowners have stubbornly held on. This is because they expect to recover the tax burden through future price increases. More people have chosen to gift properties to their children to reduce tax burdens rather than sell. According to the Korea Real Estate Board, the number of gifted housing transactions in Seoul in April was 3,039, marking a three-month consecutive increase. This is an increase of 930 cases (44.2%) compared to 2,106 cases a year earlier. As a result, the shortage of listings has deepened the transaction freeze, stimulating only the value increase of ‘smart single properties’ concentrated in Gangnam and Seocho areas.

From June 1, the highest capital gains tax rate will be raised to 75%. Short-term holders under one year will face an increased rate from the existing 40% up to 70%, and owners of three or more houses in regulated areas will be taxed up to 75% on capital gains. The comprehensive real estate tax rate for multi-homeowners will also be raised to a maximum of 6%. Consequently, demand for ‘smart single properties’ is growing, but concerns remain that the shortage of listings may prolong the transaction freeze and housing price instability.

In fact, the number of apartment listings in the Gangnam area is rapidly decreasing, signaling a worsening transaction freeze. According to real estate big data company Apartment Real Transaction Price, as of the 31st of last month, apartment listings in Gangnam-gu hit a 91-day low at 4,096 units. A real estate industry official said, “Since tax-avoidance listings that needed urgent disposal have ended, homeowners are expecting housing price increases similar to last year,” adding, “Reflecting the tax hikes starting in June, listings in the Gangnam area have already been appearing at prices 100 to 200 million KRW higher since the end of May.”

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