Registered Landlords Opt for Self-Residence, Raising Fears of 37,000 Rental Units Disappearing in Seoul

Deregistered Landlords Face Gradual Reduction of Tax Benefits

Growing Tendency to Refuse Lease Renewals to Ease Tax Burden

Low Deposits on Registered Rentals Limit Sales with Tenants in Place

Up to 37,000 Rental Apartments at Risk in

#Mr. A, who is renting out an apartment unit in Singil-dong, Yeongdeungpo-gu, Seoul, will see both the mandatory rental period and the lease contract end in August and September this year. Mr. A initially considered renewing the contract in response to the tenant's request, saying they had nowhere else to move, but ultimately decided to live in the apartment himself. He has to sell the apartment by next year to reduce the capital gains tax burden under the latest tax reforms. While it is possible to sell the unit with the tenant in residence by renewing the contract, he judged it would be difficult to find a buyer because the existing security deposit is about 200 million won lower than the market average of around 800 million won in the area.

The government is gradually reducing tax benefits for registered apartment rental business operators, prompting an outcry from the rental industry. Even though property owners are required to sell the house within a certain period after the end of the mandatory rental term, if the tenant exercises the right to renew the lease, the unit must be sold with the tenant in place, making it difficult to dispose of. As more landlords are choosing to occupy the apartments themselves, concerns are mounting that more than 37,000 apartment rental units may disappear from the Seoul market alone.

As of the 6th, according to the rental industry, tax reform has drastically reduced the benefits available to registered rental business operators. Starting October 1, the government will phase out the capital gains tax exemption and the 50% special deduction for long-term ownership on apartments acquired for rental in price-regulation zones.

According to the Ministry of Economy and Finance's tax reform plan, landlords who wish to receive existing benefits must sell their property by December 31, 2027. If they sell in 2028, the benefits are halved (with capital gains tax exemption and special long-term deduction reduced to 30%). From 2029, a higher capital gains tax will apply and the special deduction for long-term ownership will be eliminated. Landlords with mandatory rental obligations as of January 1 next year must sell within one year after the end of the mandatory period to maintain existing benefits; if they sell between one and two years, only half the tax benefits and the 30% special deduction apply. After two years, all benefits expire.

The government has also allowed sales with tenants in place by suspending the requirement for self-occupancy in regulated areas of the metropolitan area until May 2028. However, registered rental business operators say this does not reflect reality. First, registered rental units typically have lower security deposits than the surrounding market, making it difficult to find buyers. Due to a regulatory cap, registered landlords can only increase security deposits by up to 5% from the previous contract during the mandatory term—so when registration ends, the deposit is generally lower than the current market level. Furthermore, due to strict lending regulations, buyers of tenant-occupied properties are usually unable to apply for mortgage loans, and must pay the difference between the sale price and deposit in cash. The lower the deposit compared to the market, the greater the financial burden on buyers.

As a result, more registered rental operators are refusing to renew contracts after the mandatory rental term ends. For instance, Mr. B, a registered rental business operator leasing an apartment in Seongdong-gu, Seoul, plans to move into that apartment after selling his house in Siheung, Gyeonggi Province, when the current lease expires this December. While the tenant expressed a wish to stay on a long-term basis with a deposit about 40% lower than the market price of 780 million won, Mr. B decided not to renew the lease in order to benefit from the reduced capital gains tax burden by disposing of the unit within the deadline imposed by the tax reform.

Mr. B said, "All my children are independent now, so I have no particular reason to live in Seoul, but I am stuck having to move into this apartment in Seongdong-gu because of tax reasons. I'm considering either gifting the apartment to my son or selling it to him through a loan after living there for a certain period."

Mr. C, who is renting out an apartment in Sunae-dong, Bundang, also plans to ask his tenant, whose lease expires in 2028, to vacate after the registered rental status was cancelled last May. This is because the unit's current deposit (690 million won) is substantially lower than the market price (950 million won), making it virtually impossible to sell with the tenant in place. To avoid additional capital gains tax, Mr. C must sell by the end of this year. Mr. C said, "The tenant asked for an extension to match their children's school schedule, so I made the lease 32 months instead of the standard 24 months. But my goodwill in accommodating the tenant has come back as a tax bomb."

If more landlords choose to occupy their own properties, the supply shortage in Seoul's rental market is expected to worsen. According to analysis by the Korea Association of Landlords based on the Ministry of Land, Infrastructure and Transport's statistics on registered private rental housing, the number of apartments in Seoul whose mandatory rental registrations are expiring and being deregistered is expected to total 22,822 units this year alone. In the next two years, a further 14,861 units are set to expire. Assuming all such units are reclaimed by the landlords for their own use, it means that more than 37,000 apartment rental listings could vanish in Seoul.

Seong Changyeob, president of the Korea Association of Landlords, said, "Landlords are forced to forego lease renewals and opt for self-occupancy in order to dispose of the property within the deadline, while tenants lose the chance to continue living in homes below market rates. Institutional improvements are necessary."

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