Market Holds Its Breath Amid LTO Deduction Abolition Debate: "Homeowners Likely to Stay Without Selling"

Apartment buildings in the three Gangnam districts of Seoul. Photo by Yonhap News

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"People are thinking, 'They won't really abolish the Long-Term Ownership Special Deduction (LTO deduction), will they?' Just like when the temporary suspension of the heavy capital gains tax for multiple homeowners ended, there are no homeowners putting their properties on the market." (A certified realtor in Irwon-dong, Gangnam-gu, Seoul)

While the debate over the abolition or reduction of the capital gains LTO deduction for single-homeowners continues, there has been little movement in the actual market. This is because it remains uncertain whether the tax reform will actually take place, and no specific policy direction has been announced. Some predict that even if the tax policy is completely changed, the "sit tight" mentality will prevail, leading to only a limited number of properties hitting the market.

On April 24, when asked about the impact of the LTO deduction at real estate agencies across Seoul, most responded that "nothing has changed so far." The LTO deduction is a tax benefit that exempts a portion of capital gains if a property is held for a certain period. For single homeowners selling a property worth more than 1.2 billion won, if both the ownership and residence periods exceed 10 years each, they can receive a deduction of 40% for each, up to a maximum of 80%.

According to a simulation provided by Woobyeong Tak, Premier Pathfinder Specialist at Shinhan Bank, if someone purchases an apartment for 2 billion won and holds and resides in it for 10 years before selling it for 4 billion won, the 80% LTO deduction would exempt 1.12 billion won of capital gains, resulting in a capital gains tax liability of 94,061,000 won. However, if the LTO deduction is abolished and the total deduction is limited to 200 million won over a lifetime, the total tax payable would rise to 399,228,500 won-an increase of approximately 4.2 times.

Homeowners are said to have a strong tendency to "wait and see" before making decisions. If there are gradual changes, they will react accordingly, but if the reform happens suddenly, they intend to simply hold on to their single home and continue living there. A real estate agent in Yeomni-dong, Mapo-gu, commented, "If the LTO deduction suddenly disappears, no one will want to sell their house just to hand over all their profits in taxes-they'll just keep living in their own home."

Since the controversy over the abolition or reduction of the LTO deduction began, the number of properties for sale has actually decreased slightly. According to real estate platform Asil, as of April 23, there were 75,313 apartment listings in Seoul, which is 334 fewer compared to April 18, when President Lee Jaemyung made a comment regarding the LTO deduction on X.

Kwon Youngsun, Team Leader at the Shinhan Bank Real Estate Investment Advisory Center, explained, "The LTO deduction is designed to allow people who have maintained a single home for a long time to move up to a better property. If this benefit is cut off, they’ll have to move to a house that is relatively lower in value or similar, which means there’s little reason to make a transaction at all."

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