"Can't Sell with That Tax"... Real Estate Tricks Rampant Amid Transaction Cliff

Exchange, Gift, Change of Use, and Even Fake Divorce

The view of the downtown apartment complex from Namsan, Seoul, on the 13th

With the combined burden of capital gains tax and holding tax along with a transaction freeze, cunning transactions are rampant in the real estate market. The government expected multi-homeowners to put their properties on the market due to increased holding taxes and reduced tax benefits, but instead, transactions have disappeared and only loopholes are thriving in the market.

Mr. A is currently undergoing the process of changing the use of a building he owns to a neighborhood living facility (Geunsaeng). Since Geunsaeng is not included in the number of houses, multi-homeowners can avoid a tax bomb. Capital gains tax and acquisition tax can also be reduced when selling. If the contract includes a special clause stating that the use will be changed to Geunsaeng before the final payment while the property is still classified as a house, Mr. A can even receive the capital gains tax exemption benefit for a single household single house based on the contract date.

Mr. and Mrs. B, who own two apartments, planned to sell one house to prepare for retirement but are now considering divorce. By dividing the houses one each through divorce, household separation occurs simultaneously, making each a single household single house, thus applying the tax exemption benefit and allowing the sale of one house. A real estate tax specialist said, "Those who know about it are already aware of this method, and consultations come in frequently." However, since the second half of last year, as the 'holding tax bomb' arrived in the form of tax bills and the market sentiment weakened, such loopholes have become widespread.

As the capital gains tax exemption period shortens, more people are choosing exchange instead of transfer. According to tax law, among single households with two houses in speculative overheated zones or regulated areas, the house that has been lived in for more than two years must be sold within one year from the acquisition of the new house to avoid capital gains tax surcharges. However, due to the transaction freeze making it difficult to sell at the desired price, some are exchanging houses of similar price ranges to receive capital gains tax exemption. 'Gift instead of sale' has also become common. Multi-homeowners gift houses to their children and separate households. While the capital gains tax rate can reach up to 82.5%, the gift tax remains at 50%.

Despite pressure targeting multi-homeowners, they are holding out by not putting properties on the market and resorting to exchanges, gifts, use changes, and fake divorces. Experts argue that instead of strengthening tax policies, it is necessary to induce the release of properties by easing regulations. Professor Shim Gyo-eon of Konkuk University’s Department of Real Estate said, "Multi-homeowners supply about 80% of the private rental market, and if regulations are imposed, the supply of rental properties in the market will inevitably decrease," adding, "Easing regulations will facilitate supply and stabilize the market."

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