[Resumption of Heavier Capital Gains Tax After Four Years] 46.4% of Real Estate Experts Cite "Instability in Jeonse and Monthly Rent as Key Structural Risk"

Survey of Real Estate Experts and Field Agents
Housing Supply Legislation Stalled in the National Assembly
"Three Lease Laws Need Revision, Targeted Regulations Required"

Editor's NoteWith just over a month left before the heavy capital gains tax on multiple home owners is implemented, the real estate market is holding its breath. Since President Lee Jaemyung confirmed the plan to impose the heavier capital gains tax this past January, home prices in the three Gangnam districts have shown a slight downward trend, while in outlying areas such as Gangbuk, prices have trended upward due to low-priced purchases. The market's attention is now focused on what will happen after May 10, when the new capital gains tax goes into effect. Opinions are split between those who expect prices to rise due to a "lock-in" of listings, and those who believe more properties will hit the market as the property holding tax "bomb" adds pressure to sell. The Asia Business Daily conducted a survey of 28 experts in real estate and finance, including field-based certified real estate agents, asking about "market trends and outlook before and after the implementation of the heavier capital gains tax." When the survey was conducted earlier this month, the government had intended to apply the grace period for the heavier tax up to "contracts signed by May 9." However, it has since expanded the scope to include "land transaction permit applications." This adjustment was made because the approval date for land transaction permits is unpredictable after application, and the government wanted to eliminate uncertainty for the parties involved.

A view of an apartment complex in Gangnam-gu, Seoul. Photo by Yonhap News

Real estate experts consider "instability in the jeonse and monthly rental markets due to a shortage of housing supply" to be one of the main structural risks facing the market over the next five years. As the government has put "one home for actual residence" at the center of its housing policy, jeonse and monthly rental listings are decreasing, which is interpreted as an urgent call for expanded supply.

In a survey conducted by The Asia Business Daily with 28 real estate experts and certified real estate agents, 46.4% of respondents identified this as the "biggest structural risk in the real estate market over the next five years." This was the second most chosen response, following "the risk of regional extinction and polarization due to a growing concentration in the Seoul metropolitan area," which was selected by 53.6% (multiple answers allowed).

The perception of the jeonse and monthly rental markets as a structural problem stems from concerns that a decline in permits and construction starts in Seoul and the metropolitan area could lead to a future decrease in available housing. According to data from the Korea Real Estate Board and Real Estate R114, the supply of new apartment units in Seoul, which stood at around 30,000 units each in 2023 and 2024, is expected to drop sharply to 27,158 units this year and 17,197 units next year. This suggests that a reduction in supply is likely to fuel housing insecurity.

One expert who cited instability in the jeonse and monthly rental markets as a risk explained, "It takes about three years from land acquisition to occupancy, making it difficult to increase supply in the short term, and the supply of new apartments—the main product—is also insufficient for the next two years. As the government tightens loan regulations to manage the risks of jeonse fraud and household debt, the shift from jeonse to monthly rent is accelerating. Combined with supply-demand imbalances, this creates a structure in which rental prices are inevitably pushed upward."

Experts also cited "reduced effective demand and declining asset values due to low birth rates and an aging population (28.6%)," and "instability in the financial system due to the accumulation of household debt (21.4%)," as other factors that could cause serious problems in the market over the next five years.

When asked which policy is most urgently needed to stabilize the real estate market, 74.1% called for "expanding the supply of new housing." However, legislative progress has been slow. Seventy-eight bills classified by the ruling party as high-priority—including the Special Act on Public Housing and the Special Act on the Mixed-Use Development of Aging Public Office Buildings—are currently stalled in the National Assembly. Amendments to the Urban and Residential Environment Improvement Act, which include easing rebuilding floor area ratios, have been pushed to the plenary session by the ruling party, but have been halted due to opposition from the minority party and delays in plenary scheduling. An official from the National Assembly's Land, Infrastructure, and Transport Committee stated, "The subcommittee is scheduled to discuss laws related to the September 7 supply measures on the 22nd, but there is a possibility they may be postponed again."

The second most common response was "supplementing jeonse and monthly rent-related systems, including the three lease laws (44.4%)." After the implementation of the three lease laws in 2020—contract renewal request, jeonse and monthly rent cap, and rental reporting—many landlords converted jeonse units to monthly rentals to maintain profitability, as increases in rent were restricted. As a result, the proportion of monthly rent transactions soared to 63% of all rental deals last year. The government's October 15 measures, which designated all of Seoul as a land transaction permit zone, also had an impact. Now, buyers must move in immediately upon purchase, resulting in a decrease in new jeonse and monthly rental listings. Compared to two years ago, jeonse prices have risen, and as jeonse loans have also been restricted, many tenants have opted to renew their leases instead of moving. Last month, the proportion of renewed jeonse and monthly rental contracts in Seoul apartment transactions reached 51.8%, surpassing new contracts.

"Applying differentiated regulations by region" ranked third, at 33.3%. This reflects criticism that including all of Seoul in permit or regulated zones fails to account for differences between the Gangnam area and outer markets.

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