Review of Tax Relief for Non-Resident Single-Homeowners Halted Rising Prices in Gangnam
As the government and ruling party decided to amend the 'taxation of non-resident single-homeowners'—a core pillar of the August 3 real estate tax reform—merely three weeks after its announcement, investment sentiment has frozen, halting the upward trend in Gangnam apartment prices.
According to government and political sources on the 25th, the government and the Ministry of Economy and Finance are reconsidering the tax revision plan for non-resident single-homeowners, reflecting the outcome of the high-level government-ruling council meeting held on the 23rd. The move comes just three weeks after the announcement of the 'strengthened taxation on non-resident single-homeowners,' a key element of the August 3 measures. The government's original plan proposed raising the basic property tax deduction for resident single-homeowners from 1.2 billion won to 1.4 billion won, while lowering it for non-residents to 900 million won and expanding the tax liability cap from 150% to 200%. It also included abolishing the holding period deduction for long-term holding special deductions on capital gains tax starting in 2029.
The ruling party has called for a reexamination of the property tax differential itself and demanded a broader recognition of inevitable reasons for non-residency. Consequently, discussions range from restoring the basic deduction for non-residents to the current level of 1.2 billion won to a compromise raising it to the same 1.4 billion won as residents. The government is considering submitting a revised bill to the State Council on the 1st of next month and presenting it to the National Assembly on the 3rd. The revision will be finalized after review by the National Assembly's Strategy and Finance Committee and its Tax Subcommittee. Adjustments will include the fair market value ratio, tax liability cap, and long-term residency deduction for capital gains tax.
Following the tax announcement, asking prices in some complexes dropped. A 34-pyong unit at Raemian Daechi Palace listed at 4.2 billion won with a sitting tenant, while a 31-pyong unit in Eunma Apartment was adjusted from 3.4-3.5 billion won two months ago to 3.1 billion won. Sales transactions have decreased, while the jeonse (long-term lease) market shows strength.
Figures confirm the divergence between sales and jeonse markets. According to real estate big data firm Asil, the number of apartments for sale in Seoul increased from 60,409 to 65,907 (up 5,498 units, or 9.1%) between August 3 and 25. The Gangnam three districts accounted for 2,683 units, or 48.8% of the total increase in Seoul. Conversely, jeonse listings dropped by 3.4% from 20,800 to 20,088 during the same period. Songpa and Seocho districts saw declines of 13.2% and 7.2%, respectively, showing a contrary trend where jeonse supplies dried up faster in areas where sales listings increased. Compared to a year ago, Seoul's jeonse supply dropped by 13.4%, highlighting a distinct shortage.
The shrinking jeonse supply has led to rising prices. According to the Korea Real Estate Board, Seoul apartment jeonse prices rose by a cumulative 0.39% over the two weeks following the tax announcement. In the sales market, KB Kookmin Bank data shows the average Seoul apartment price this month at 1.06739 billion won. However, while Gangnam and Seocho districts fell for two consecutive weeks, Seongbuk, Jungnang, and Seodaemun-gu continued to rise, showing regional disparities.
Hahn Young-jin, head of Woori Bank's Real Estate Research Lab, stated, "The market sentiment that judging single-homeowners as non-actual demand solely for not residing there is harsh has been reflected." He added, "It should be viewed as an intention to widen the scope of tax exceptions for those with inevitable reasons for non-residency, rather than making residents and non-residents completely identical." He explained, "If the scope of residency recognition for non-residents is expanded, the side effect of decreased rental listings as people move in to avoid tax burdens will be significantly alleviated." Koh Jun-seok, an adjunct professor at Yonsei University's School of Business, noted, "Categorically viewing non-residents as speculative demand is an excessive generalization," but pointed out, "Even if exceptions are increased, new exceptions arise, making it difficult to simultaneously satisfy residence-based taxation and equitable relief."
