"Tax Burden Inevitably Reflected in Rent and Lease Prices... Tenant Costs Will Rise"[Real Estate AtoZ]

Pinpoint Target: Comprehensive Property Tax Hits Homes Over 4 Billion Won
"Three Waves of Listings in Gangnam: August, Next May, and Year-End"
"Older Owners Downsizing... Asset-Rich Buyers in Their 40s and 50s Will Move In"

Due to the government's real estate tax reform, experts predict that listings of ultra-high-priced homes in Seoul's Gangnam area will emerge in three waves by the end of next year. In particular, the increased holding tax will have the greatest impact on properties valued at over 4 billion won, while the reduction in capital gains tax exemptions will significantly affect homes with profit gains over 3 billion won. As a result, the selling pressure is expected to concentrate on ultra-high-priced and long-term held properties in Gangnam. However, since these homes are very expensive, it is considered more likely that asset-rich buyers in their 40s and 50s will purchase them rather than first-time or homeless buyers. Non-resident single-home owners are seen as likely to move in themselves, making it difficult to expand supply and likely worsening the shortage of rental and lease properties.

Wealthy Buyers Will Absorb Listings... Only Jeonse and Monthly Rent Burden Will Increase

A real estate agency in Gangnam-gu, Seoul, on the 31st of last month. Photo by Yonhap News

Many experts believe that even if more listings come on the market, home prices are unlikely to fall sharply. Lee Chang-moo, a professor at Hanyang University, said, "Some properties will be listed, but ultimately they will be purchased by those with financial capability," adding, "Gangnam and Seocho may increasingly become neighborhoods exclusively for wealthy and high-income residents." He also pointed out that if demand for ultra-expensive housing shifts to slightly cheaper areas like Mapo, Seongdong, and Gwangjin, home prices along the Han River may be stimulated further.

On the ground, some in the real estate sector expect homeowners to "hold out." With home prices rising steeply, there is little incentive to put properties on the market. Immediately after the tax reform plan was announced, there was little movement in Seoul's real estate market. The owner of a brokerage in Yangcheon-gu, Seoul, said, "No matter how much the taxes increase, children will likely help pay, so why would anyone sell and move out?" adding, "The government's goal of pushing multi-home owners and high-end properties onto the market is unlikely to work on the ground." The current strong buying sentiment is also bolstering existing homeowners' confidence. The broker said, "I listed an apartment in Sinjeong-dong for 1.1 billion won, which was previously worth 1.02 billion won, and within just two days, I got a buyer," noting, "With the market this strong, where home prices increase by 100 million won a month, who would part with their home easily?"

As a result, actual damage is expected to be greatest in the rental market. If non-resident landlords move in to reduce tax burdens, existing tenants will have to leave, reducing the supply of rental properties in the area. If the net capital gains after tax shrink, landlords may increasingly prefer monthly rental contracts rather than jeonse, which provides a large lump sum deposit but not monthly cash flow.

Professor Lee added, "If it becomes harder for landlords to replace capital gains with monthly rental income, they may try to raise rents," warning, "If higher multi-homeowner taxes trickle down to the mid- to low-end rental market, tenant burdens could rise sharply." Commissioner Woo also commented, "While the sales market for ultra-high-end homes may tilt toward stability or flat prices, tighter occupancy requirements may drive jeonse rents even higher."

"2027 Will Be the Right Time to Sell"... Long-Time Older Residents of Gangnam Set to Downsize

In the ultra-high-value segment, some listings are expected to come onto the market. However, the outlook is that these properties will go mainly to wealthy buyers, not first-time or homeless homeowners. Park Won-gap, Chief Real Estate Expert at KB Kookmin Bank, said, "The first wave of listings will occur this August, followed by another at the end of May next year ahead of the comprehensive property tax assessment date (June 1, 2027), and a third surge right before capital gains tax deduction limits are applied at the end of next year—a 'three-wave listing phenomenon.' Especially in the first half of next year, leading up to the comprehensive property tax assessment, ultra-high-priced property listings are likely to concentrate." Major targets are areas with many elderly, long-term owners such as Apgujeong, Banpo, Dogok, and Daechi.

Woo Byung-tak, Senior Expert at Shinhan Premier Pass Finder, also said, "Depending on whether the law passes, the end of this year and just before the official price announcement in April or May next year will see a surge in listings." Nam Hyuk-woo, a researcher at Woori Bank Real Estate Research Institute, noted, "2027 is the 'final golden time' to sell before current deductions are phased out, and a wave of last-minute listings may occur."

Experts identify the main sources of listings as long-term held properties with market values above 4 billion won, or capital gains above 3 billion won. Homes with lower gains experience little impact from the reduction in deduction limits, but once capital gains exceed 3 billion won, they all surpass the deduction caps that will drop to 2 billion won in 2028 and to 1 billion won in 2029. Again, key areas include Apgujeong, Banpo, Dogok, and Daechi, where many older long-term owners reside.

Older owners with less cash income may downsize to a smaller home in Gangnam or move out of the metropolitan area—opting for what is referred to as "residential downsizing." In 2027, elderly single-home owners who sell a property in the greater Seoul area and relocate elsewhere will benefit from a special scheme, reducing their capital gains tax by 50% up to a maximum of 500 million won.

Commissioner Park said, "Some older long-term residents in Apgujeong and similar areas may move to smaller homes or to locations like Cheonan, Wonju, or Chuncheon, which are still easily accessible to Seoul," adding, "In Gangnam, younger wealthy buyers will purchase the homes released by these sellers, accelerating a generational shift in homeownership."

Researcher Nam also said, "Core redevelopment complexes in Gangnam, which have seen little change of hands, still show strong intent to sell," pointing out, "As these homes hit the market, wealthy buyers in their 40s and 50s will step in, triggering a faster generational shift in homeownership in Gangnam."

"Sell and Buy Next Door"... Trading Places in the Same Neighborhood

For homeowners with sufficient financial resources, instead of leaving Gangnam they may choose a "trading places" strategy, selling their current property and buying another of similar price in the same complex or neighborhood. By selling before the new deduction limits take effect in 2027 and buying a new property, the purchase price for the new home will be higher. When eventually selling the new home, capital gains tax will be calculated only on the gain above the new purchase price.

While transfer taxes and other transaction costs will be incurred, for long-term owners with capital gains amounting to billions of won, the benefit from lower taxation may outweigh these costs, making the strategy of selling and repurchasing worth considering. Commissioner Park explained, "There may be de facto swap transactions between next-door neighbors within the same complex—selling and buying from one another. This allows owners to apply current deduction benefits to their existing gains while locking in a higher cost basis on the new purchase."

Commissioner Woo also said, "In the past, even significant hikes in the holding tax did not dramatically increase the number of sales, but this time, the combined burden of holding and capital gains tax is heavier," noting, "Before tax benefits are reduced, we may see owners selling and repurchasing to minimize capital gains exposure—a trend of 'trading places' in the same location."

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