Hyosun Kim, Senior Real Estate Officer at NH Nonghyup, is being interviewed by Asia Economy at the NH Nonghyup Bank headquarters in Seodaemun-gu, Seoul. Photo by Yongjun Cho

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This is the question most seniors ask when considering downsizing to secure living expenses for retirement. The key issue is taxes. If there is no remaining profit after paying heavy taxes, there is no point in downsizing.

There are two types of taxes seniors need to consider. Capital gains tax when selling the current home, and acquisition tax when purchasing a new home. Among these, acquisition tax is determined by the home price, and there are no tax exemptions. The critical point is the capital gains tax. Kim Hyosun, Chief Real Estate Specialist at NH Nonghyup, said in an interview with us, "When seniors consider downsizing, the most important factors are the current home's price, length of residence, and the number of homes owned." She added, "These three factors determine the size of the capital gains tax."

View of Yeouido apartments from the 63 Building observatory. Photo by Hyunmin Kim kimhyun81@

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-What are the most favorable home ownership conditions for downsizing?

▲Under current tax law, the burden of additional taxation is very high for those who own multiple homes. Therefore, multi-home owners should avoid downsizing. This is a strategy recommended only for single-home owners. Of course, even for single-home owners, minimizing capital gains tax is key to maximizing the remaining profit. If you meet all three conditions?'single household, single home,' 'ownership of more than two years (more than two years of residence in regulated areas),' and 'home price under 1.2 billion won'?you are exempt from capital gains tax. In this case, there is no risk of losing money to taxes.

Hyosun Kim, Senior Real Estate Officer at NH Nonghyup, is being interviewed by Asia Economy at the NH Nonghyup Bank headquarters in Seodaemun-gu, Seoul. Photo by Yongjun Cho

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-If you are subject to capital gains tax, what should you consider?

▲The length of residence is important. Seniors who have owned and lived in their home for at least 10 years can benefit from the 'Long-term Ownership Special Deduction.' Even if the capital gains tax is high, 80% will be deducted. You only pay 20% of the original amount, greatly reducing the tax burden. Let's look at the difference in capital gains tax based on the length of residence, using Mapo Raemian Prugio in Mapo-gu, Seoul as an example. If you owned and lived in a 110m² (2 billion won) unit for 10 years and move to an 80m² (1.6 billion won) unit, you only pay 22 million won in tax. If you lived there for three years, the tax increases to 82 million won. If you never lived there, it jumps to 150 million won. For those with two homes, regardless of residence period, the capital gains tax is 440 million won. If you move and the profit is 400 million won, multi-home owners gain nothing from downsizing.

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-How much profit can you expect from downsizing in major areas of Seoul?

▲Let's look at a case where a single-home senior has lived in their home for 10 years and decides to downsize. Suppose you bought a home in December 2014, sold it in December 2024, and moved to a smaller apartment in the same complex. If you calculate all costs?including capital gains tax, acquisition tax, brokerage fees, and moving expenses?the higher the home price, the more tax you pay, but the greater the remaining profit.

The Bank of Korea raised the base interest rate by 0.5 percentage points, signaling a prolonged winter in the real estate transaction market. On the 13th, a red light was on at a traffic signal near an apartment in downtown Seoul.

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If you move from a 110m² (2 billion won) unit to an 80m² (1.6 billion won) unit at Mapo Raemian Prugio in Mapo-gu, you can keep 312 million won. If you move from a 114m² (1.3 billion won) unit to an 81m² (1 billion won) unit at Seonsa Hyundai Apartment in Amsa-dong, Gangdong-gu, the profit is 260 million won. If you switch from an 85m² (600 million won) unit to a 64m² (450 million won) unit at Sanggye Jugong in Nowon-gu, which is not subject to capital gains tax, you will have 140 million won left.

On December 23 last year, Hyo Sun Kim, Senior Real Estate Officer at NH Nonghyup, was interviewed by Asia Economy at the NH Nonghyup Bank headquarters in Seodaemun-gu, Seoul. Photo by Yong Jun Cho

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-What should seniors consider when downsizing?

▲For single-home owners, it is estimated that most apartments in Seoul will leave at least 100 million won after all taxes and expenses are deducted. Therefore, it is necessary to significantly increase the 100 million won limit for the amount that can be deposited into an Individual Retirement Pension (IRP). It is also important to check whether the value of the new home will be maintained after downsizing. Since housing accounts for a large portion of seniors' assets, it is crucial to carefully select a new home to ensure its value does not decrease.

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