Gift Instead of Sale, Tenant Damage... 'Jongbuse' Effect Different from Expectations

Housing Gifts Exceed Usual Levels Until September This Year
Rising Monthly Rent... Multi-Homeowners Shift Tax Burden to Tenants

[Asia Economy Reporters Kim Hyemin and Kim Dongpyo] Mr. Kim (68) is a multi-homeowner who owns three houses in the Seoul metropolitan area, including an apartment in Wirye New Town where he currently resides, as well as in Pangyo New Town and Incheon. This year, he sold two of the houses except for the Wirye apartment due to the sharply increased comprehensive real estate tax burden. However, instead of selling, he chose to gift the Incheon apartment to his eldest son and the Pangyo apartment to his second son. He explained, "I judged that gifting early is more advantageous in many ways than selling the houses to others."

Although the government began sending out comprehensive real estate tax payment notices on the 22nd, realizing an unprecedented tax bomb, there is a forecast that the number of multi-homeowner listings in the market will not increase significantly. This is because most multi-homeowners have already settled their properties through 'gifting.' This outcome differs from the government's expectation that the holding tax pressure would lead to an increase in multi-homeowner listings.

The enthusiasm for gifting is confirmed by statistics. According to the Korea Real Estate Board, the number of housing gifts nationwide reached 107,775 cases from the beginning of this year to September. The number of cases by the end of the third quarter has already exceeded the usual 50,000 to 80,000 cases. During the Park Geun-hye administration (2013-2016), the average annual number of gifts was about 68,000 cases.

The most active region for gifting this year is Gyeonggi Province. As of the end of September, apartment gifts in Gyeonggi reached 28,912 cases, surpassing last year's total of 26,301 cases. In Seoul, the number of gifts slightly decreased to 10,804 cases compared to 17,364 cases last year, but gifting actually increased in the Gangnam area. In Gangnam-gu, the number rose from 2,348 cases last year to 2,440 cases, and in Songpa-gu, from 2,112 to 2,241 cases. Similar trends are seen in other provinces. The number of apartment gifts in Daegu and Gyeongbuk reached record highs since statistics began in 2006, with 4,866 cases in Daegu and 2,344 cases in Gyeongbuk.

This contrasts sharply with the sharp decline in sales transactions this year. The government expected an increase in listings due to strengthened tax regulations on multi-homeowners, but the actual market moved in a different direction. The end of the capital gains tax exemption for multi-homeowners after June is also evaluated to have rather encouraged market listing freezes and gifting.

There are concerns that many multi-homeowners are entering a 'holding' phase with expectations of regulatory easing after next year's presidential election, which could harm tenants. This is due to the phenomenon of landlords shifting part of the increased tax burden to tenants by converting jeonse (long-term deposit leases) into monthly rent.

In fact, the volume of monthly rent (monthly rent, semi-monthly rent, semi-jeonse) transactions for Seoul apartments surged this year. According to the Seoul Real Estate Information Plaza, the number of such transactions from January to October this year was 54,765, marking the highest level in the past five years. According to the Korea Real Estate Board, monthly rent prices also rose from 1.12 million KRW (as of October last year) to 1.234 million KRW within a year.

Ko Joon-seok, adjunct professor at Dongguk University Law School, said, "The burden of the comprehensive real estate tax is likely to continue the gifting craze and accelerate tax shifting. The comprehensive real estate tax, intended to penalize 2%, is making the remaining 98% bear an even heavier burden."

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