Multi-Homeowners Face Tax Bomb... Will Listings Flood the Market?

Eunma + Marepu Two-Homeowners Face 99 Million KRW Property Tax, Up 24 Million KRW
Three-Homeowners' Tax Burden Increases, Possible Trend to Reduce Number of Homes
Strong Sentiment for High-Value Single Homes... Holding Out Expected Due to Capital Gains Tax Burden
Yoon's Pledge to Postpone Capital Gains Tax Hike... Legal Amendments Expected to Face Difficulties

[Asia Economy reporters Kangwook Cho and Minyoung Kim] Although the government has proposed freezing property holding taxes at last year's level, multi-homeowners are unlikely to avoid a tax bomb. The government is pressuring multi-homeowners to sell their properties by June to become single-homeowners, stating that the comprehensive real estate tax will be applied based on last year's official property price. However, it is uncertain how effective this measure will be in stabilizing the real estate market. This is because the capital gains tax surcharge, which blocks the exit route for multi-homeowners, is still in effect. Although President-elect Yoon Seok-yeol pledged to postpone the capital gains tax surcharge for multi-homeowners, there is considerable backlash labeling it as a 'tax cut for the rich,' and fundamentally, it requires amending the law, which is also an obstacle.

According to an analysis commissioned by Asia Economy on the 24th from Woobyungtak, head of the Real Estate Team at Shinhan Bank WM Consulting Center, a two-homeowner holding an 84㎡ unit in Eunma Apartment, Daechi-dong, Gangnam-gu, Seoul, and an 84㎡ unit in Mapo Raemian Prugio, Mapo-gu, will have to pay 99.14 million KRW in holding tax this year, which is 24.62 million KRW more than last year (74.52 million KRW). Compared to two years ago, it has surged by more than 68 million KRW. A two-homeowner holding an 84㎡ unit in Eunma Apartment, Daechi-dong, and an 82㎡ unit in Jamsil Jugong 5 Complex, Songpa-gu, will see their holding tax rise from 99.7 million KRW last year to 138.09 million KRW this year, an increase of 38.39 million KRW. The holding tax in 2020 was 42.7 million KRW, meaning it has nearly doubled in just two years.

For three-homeowners, an even stronger 'tax bomb' awaits. If one owns a 112㎡ unit in Acro River Park, Banpo-dong, Seocho-gu, an 84㎡ unit in Eunma Apartment, Daechi-dong, and an 82㎡ unit in Jamsil Jugong 5 Complex, the holding tax this year reaches 316.9 million KRW. This is 57.12 million KRW more than last year and has surged by over 200 million KRW compared to 2020. Additionally, those owning three units of 84㎡ each in Sangdo The Sharp 1st Complex, Dongjak-gu, Sangam World Cup Park 4th Complex, and Hanshin Hanjin Apartment, Donam-dong, will face a tax of 69.7 million KRW, about five times higher than two years ago.

The government expects that multi-homeowners facing increased holding tax burdens will sell some of their properties. In this context, the government has introduced holding tax reductions for ultra-high-priced homes subject to comprehensive real estate tax, limited to single-homeowners, and established a deferral system for comprehensive real estate tax payments for seniors aged 60 and above. However, the expectation that the 'smart one-home ownership' sentiment will strengthen, especially in Seoul and the metropolitan area, suggests that the market may not move as the government anticipates. Park Won-gap, senior real estate specialist at KB Kookmin Bank, predicted, "Among multi-homeowners, there may be a trend to reduce the number of homes," adding, "Especially, the sentiment for owning a high-priced single home in Seoul and the metropolitan area will strengthen." This is expected to trigger polarization in real estate prices. There may also be criticism that the government failed to curb housing prices and only provided tax cuts for the wealthy.

On the other hand, there is also a forecast that multi-homeowners will not easily put properties on the market due to the capital gains tax burden and will instead 'hold out.' Currently, in designated adjustment areas, multi-homeowners face a capital gains tax surcharge of 20 percentage points on the basic tax rate for two-homeowners and 30 percentage points for those with three or more homes. Including local taxes, the highest tax rate multi-homeowners pay when selling a house reaches 82.5%. With only about two months left until the government's proposed comprehensive real estate tax application deadline (before June 1), it is difficult for transactions to be completed amid an unprecedented transaction freeze. Kim Hyoseon, senior real estate specialist at NH Nonghyup Bank, said, "The increase in listings due to this measure will inevitably be very limited."

Excluding multi-homeowners from the capital gains tax surcharge requires amending the Income Tax Act, which needs parliamentary approval. However, since it would reverse the Moon Jae-in administration's policy direction that imposed surcharges on most real estate-related taxes for multi-homeowners back to 'square one,' discussions are expected to be difficult. There are even criticisms that this holding tax relief measure has the opposite effect of strengthening multi-homeowners' holding sentiment. Team leader Woo said, "The temporary tax relief measure was not intended to increase listings but was carried out with the purpose of rationalizing holding taxation," adding, "Capital gains tax relief is necessary to encourage selling, but this system rather strengthens multi-homeowners' holding sentiment."

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