Tax Adjustments and Accelerated Supply... Real Estate Push in the Second Half of the Year

Government to Revise Measures After Imposing Higher Capital Gains Tax on Multiple Homeowners
Permanent Exemption from Heavy Capital Gains Tax for Rental Operators Likely to Be Phased Out
Tax Reform Expected to Lower Transaction Taxes and Raise Holding Taxes

The market's attention is now focused on the government's next move. President Lee Jaemyung, along with the policy chief at the Blue House, the Deputy Prime Minister for Economic Affairs, and the Minister of Land, Infrastructure and Transport—key figures directly linked to real estate policy—have repeatedly pledged additional measures. Specifically, they are expected to accelerate supply-side measures while adjusting the tax system. On May 8, Deputy Prime Minister Koo Yooncheol presided over the Economic and Real Estate Ministers’ Meeting, stating, "We are discussing various measures to bring locked-up properties back onto the market and make them available to actual occupants."

One of the measures currently being discussed in the market is whether to reduce the exemption from the heavy capital gains tax for operators of rental apartment businesses. Since both President Lee and Deputy Prime Minister Koo have addressed the issue, the likelihood of imposing higher capital gains tax rates on rental business operators has increased.

This system was introduced in 2018 with the aim of formalizing the private rental housing market, granting various tax benefits to those who registered their properties as rental housing and maintained low rental rates for a certain period. Among these benefits, the aspect President Lee has pointed out is the permanent exemption from heavy capital gains tax, even after the mandatory rental period has ended. Within government circles and the broader policy community, the prevailing view is that benefits will likely be gradually reduced over a set period.

Urgent Sale Notice posted at a real estate agency in Songpa-gu, Seoul. Photo by Yonhap News

However, such plans are likely to face resistance. These benefits were originally offered to rental business operators who accepted certain restrictions, such as a cap of 5% or less on rent increases for registered rental housing. If these benefits are withdrawn, operators could face a sudden increase in tax burdens. A local government official commented, "If the government further restricts loans for rental business operators and also reduces their capital gains tax benefits, these operators will likely push back, claiming their assets have been harmed by changes in policy." The official added, "While there is consensus that the system has unintended side effects, the government must also be prepared for potential lawsuits driven by tax resistance."

However, many in the legal community believe that such measures are well within the government’s discretion. In the past, there were lawsuits filed against the government when property tax benefits for private rental housing were curtailed through amendments to the tax law—such as removing exemptions from comprehensive real estate tax aggregation—and the courts ruled in favor of the government.

A real estate attorney explained, "If the law is amended and the benefits are reduced before the property is sold, the courts and the Constitutional Court have ruled that this is permissible as a quasi-retroactive effect." Quasi-retroactivity means that new or amended laws may be applied to ongoing matters from the past, so the revised law can be applied to operators who have not yet been taxed on capital gains.

As of the end of last year, the number of registered rental apartments in Seoul that were registered before 2019 with a mandatory rental period of 5 years or more.

Strengthening the property holding tax is also seen as inevitable. President Lee has publicly stated that he intends to make it more economically advantageous to sell early rather than bear the ongoing holding costs. While the government has not released specific details, the market expects measures such as lowering transaction taxes (acquisition taxes) while raising holding taxes (property tax and comprehensive real estate tax), or differentiating tax rates by property type—such as ultra-high-priced homes, non-residential, or multiple-home ownership. Even without amending the law, the government could independently raise the effective tax burden by increasing the official assessed value ratio or the publicly notified prices. For the long-term holding special deduction on capital gains tax, it is likely that benefits related to holding will be reduced, with the system being restructured to focus more on occupancy rather than ownership period.

It is expected that there will not be any immediately visible results in terms of new housing supply. Even with a plan in place, it typically takes at least two to three years to go through administrative procedures and commence actual construction. Regulatory reforms introduced in the September 7 supply measures last year, aimed at speeding up housing supply projects, have yet to be finalized. Amendments to the Special Act on Public Housing—which would remove the sunset clause for urban public housing complex projects or allow Korea Land & Housing Corporation (LH) to change the use of long-unused non-residential land—along with temporary relaxations of floor area ratio limits under the Urban and Residential Environment Improvement Act, and the Special Act on Aging Public Office Buildings, have all stalled at the National Assembly due to a lack of consensus between the ruling and opposition parties.

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