[비즈한국] President Lee Jae-myung has reiterated that the heavy taxation of capital gains tax on multi-home owners will be implemented on May 10th. By stating that the expiration date of the deferral is already set, he has drawn a line against any expectations of further extensions. Following these remarks, the market is seeing a conflict between the sense of crisis among multi-home owners who feel they must “sell before the heavy taxation takes effect” and the wait-and-see attitude of those who believe “it could change again if we just hold on this time.”
”Further Extension is a Miscalculation,” ‘Deferral’ Ends on May 9th
On the 25th, President Lee Jae-myung wrote on social media, “The expiration of the capital gains tax deferral for multi-home owners on May 9th was already determined in February of last year. It is a miscalculation to think that we will amend the law to extend it again. Unfair benefits caused by abnormal conditions must be eliminated, even if it is difficult.” This comes just two days after he stated on the 23rd that “there is absolutely no consideration for extending the capital gains tax exemption for multi-home owners,” effectively confirming the revival of the heavy taxation.
However, President Lee added, “Since the government is also at fault for having led people to believe in repeated deferrals over the past four years, I will discuss with the State Council allowing the tax deferral for contracts signed by May 9th.” This suggests he is considering including those who only sign a contract by that date within the scope of the deferral, as normally, one would need to pay the balance or complete the transfer of ownership by May 9th to avoid the heavy tax.
The heavy taxation of capital gains for multi-home owners is a system that imposes higher tax rates when owners in adjustment target areas sell their homes. While the standard capital gains tax rate ranges from 6% to 45% based on the tax base, an additional 20 percentage points are added for those owning two homes, and 30 percentage points for those owning three or more. Specifically, for those with three or more homes, the top tax rate can reach 82.5% when adding the 10% local income tax to the 75% heavily taxed capital gains. Furthermore, the benefit of the ‘long-term holding special deduction,’ which reduces capital gains based on the duration of ownership, is excluded during the heavy taxation period.
The heavy capital gains tax on multi-home owners was first introduced under the Roh Moo-hyun administration in 2004. It raised the capital gains tax rate for one-household-three-home owners to 60%. Later, as the real estate market stagnated following the 2008 financial crisis, the Lee Myung-bak administration continued to defer the heavy tax starting in 2009. The subsequent Park Geun-hye administration abolished the system in 2014. With the shift to a conservative administration, the regulation was effectively repealed after 10 years.
However, the Moon Jae-in administration revived the system in the August 2nd Real Estate Measures in 2018. Starting in April of the following year, they added 10 percentage points to the base rate for two-home owners and 20 percentage points for those with three or more homes. These surtax rates were raised to 20 and 30 percentage points respectively in 2021, reaching the current levels. Nonetheless, upon taking office, President Yoon Suk-yeol deferred the heavy tax for one year and subsequently extended it annually.
The heavy capital gains tax is a measure intended to encourage multi-home owners to dispose of their properties. According to the National Data Agency, as of November 2024, there are 2,377,047 multi-home owners who own two or more properties, representing 14.9% of all homeowners. In the metropolitan area, Gyeonggi had the most at 560,656 (13.8%), followed by Seoul with 371,826 (14%) and Incheon with 120,936 (13.7%). The proportion of multi-home owners has been on a downward trend, recorded at 15.8% in 2020, 15.1% in 2021, 14.9% in 2022, 15.0% in 2023, and 14.9% in 2024.
Anxiety on One Side, Wait-and-See on the Other
In the field, there are cases where multi-home owners are lowering their asking prices or offering moving expenses to tenants to facilitate sales. A real estate agent in Bangi-dong, Songpa-gu, Seoul, reported, “Many multi-home owners in this area cannot sell because of their tenants. We are seeing listings where owners are willing to add several million won to the tenant’s moving expenses just to sell the house by May.” A real estate agent in Sanggye-dong, Nowon-gu, said, “A multi-home owner client contacted me saying they must sell before the heavy tax takes effect, so please pay attention to it. Asking prices for multi-home properties are generally formed at prices 10 to 20 million won lower.”
However, there are also forecasts that it is unlikely that listings from multi-home owners will surge in land transaction permit zones. A real estate agent in Pyeong-dong, Jongno-gu, predicted, “Since the designation of land transaction permit zones, transactions have decreased, but prices have jumped by 200 to 300 million won. With asking prices rising, no fire-sale listings from multi-home owners have appeared yet. Multi-home listings will likely start from areas with smaller capital gains, such as non-metropolitan regions.” Another agent in Sanggye-dong, Nowon-gu, said, “As regulations have been repeatedly implemented and repealed, there are still many multi-home owners who choose to hold on until the regulations are relaxed again.”
Additional real estate tax reforms, such as strengthening ownership taxes, are also becoming visible. Following his remarks on the 25th, when asked about criticism that the heavy capital gains tax on multi-home owners would only have a ‘fleeting effect,’ President Lee Jae-myung asked, “If the tax for holding and waiting is more expensive than the tax paid when selling, would they still be able to do that?” This is analyzed as an indirect expression of his will to reform ownership taxes. In his New Year’s press conference on the 21st, President Lee stated, “Wouldn't (real estate tax reform) be best as a last resort?” while adding, “There is no reason not to use it.”
Park Won-gap, a senior real estate expert at KB Kookmin Bank, forecasted, “Tax-saving listings from multi-home owners in adjustment target areas will appear until mid-April. However, apartments in 12 districts in Seoul and Gyeonggi are subject to land transaction permits, and since ‘gap investment’ with existing leases is difficult for buyers, owners cannot sell during the lease term. There are many multi-home owners who want to sell but cannot.” He added, “With the revival of the heavy capital gains tax, the upward trend is likely to slow down until the implementation. After that, the transaction freeze and the ‘one high-quality home’ trend are expected to intensify further.”