Government Says "Sell Your House"... Market Responds "I'd Rather Inherit Than Sell"

Sharp Increase in Ownership Transfer Registrations (Gifts) in the First Half
Capital Gains Tax Up to 82.5%... "Gifting Instead of Selling"

Apartment complexes in the Gangnam-gu area as seen from Daemosan Observatory in Seoul

Real estate gifts, including apartments, surged by more than 30% in the first half of this year compared to the same period last year. The number of real estate gift cases in the first half of this year reached the highest level since the Moon Jae-in administration began. There is an analysis that government policies targeting multi-homeowners as the main cause of rising house prices by increasing property taxes and capital gains tax rates have had no effect in the market.

According to data from the ‘Ownership Transfer Registration (Gift) Application Donor Status’ on the Court Registry Information Plaza on the 4th, the number of donees in the first half of this year was 240,392, an increase of 30.9% compared to 183,598 in the same period last year. Compared to 179,019 in the first half of 2018, when the Moon Jae-in administration began, it is a 34.3% increase. In particular, the number of donees for collective buildings, including apartments, increased by 36.7% in one year.

This appears to be the result of multi-homeowners holding high-priced apartments rushing to gift houses to their children in response to the government’s tax hikes such as property tax. Since last month, the comprehensive real estate tax has increased up to twice the previous level, and the highest capital gains tax rate for multi-homeowners has risen to a maximum of 82.5% including local taxes. On the other hand, the gift tax rate is between 10% and 50%.

The industry explains that the reversal phenomenon between gift tax and capital gains tax frequently occurs especially in areas densely populated with high-priced houses. For example, a three-homeowner who bought a 94㎡ apartment in Gangnam-gu, Seoul, in January 2016 at the market price of 1.62 billion KRW pays 1.55124 billion KRW in capital gains tax when selling the house recently at the actual transaction price of 3.59 billion KRW. When gifting to an adult child, the tax paid is 1.2707 billion KRW, which is 200 million KRW less. Moreover, since property deductions can be applied, gifting is less burdensome in terms of taxes than selling for multi-homeowners.

The skyrocketing house prices are also stimulating the gifting sentiment among multi-homeowners. A representative from A Real Estate Agency in Dangsan-dong, Seoul, explained, "Many middle-aged people are worried that their children will not be able to buy houses in the future due to the soaring house prices," adding, "If it is difficult to realize gains through sales, they prefer to reduce their children’s burden through gifting." In fact, the number of real estate donees under the age of 30 in the first half of this year was 26,383, a sharp increase of 58.9% compared to 16,604 three years ago.

Seo Jin-hyung, president of the Korea Real Estate Society (professor at Gyeongin Women’s University), said, "With capital gains tax rates reaching up to 82.5%, it is practically impossible to sell a house even if you want to," and added, "By raising capital gains tax rates punitively, the government is effectively encouraging gifting."

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