Reconstruction Windfall Recapture Burden Drives Home Prices Down Even in Han River Belt
As the burden grows of the 'reconstruction excess-profit recapture system,' which requires sellers to return part of their market gains to the state if they sell within a year of reconstruction approval, the decline in apartment prices that began in the three Gangnam districts is spreading to the 'Han River Belt' — riverside areas dense with reconstruction complexes such as Seongdong, Gangdong, and Mapo districts. At a landmark reconstruction apartment in Gangnam, a 144㎡ unit traded for 6.6 billion won on the 5th, more than 800 million won below its price four months earlier, and asking prices at other reconstruction complexes in the Gangnam area are also falling. After more than two months of declines in the three Gangnam districts, Seongdong and Gangdong districts turned downward for the first time in seven months, while price growth in Mapo slowed sharply. Seoul apartment prices, however, have risen for 92 consecutive weeks on the Korea Real Estate Board's weekly index.
Tax burdens lie behind the wave of listings hitting the market. Moon Ji-yong, a real estate agent in Gangnam, said, "Older owners face limits on how much income they can realize and must also consider comprehensive real estate tax burdens, so they are looking to sell." The variables pressuring the market are complex. The government raised comprehensive real estate and capital gains taxes through tax reform, and with recapture bills for reconstruction projects imminent starting in the Gangnam area, buyers are increasingly turning to newly built apartments instead of reconstruction complexes.
The expected recapture charges for Seoul's 46 reconstruction complexes total roughly 2.2 trillion won. The timing of collection remains uncertain. At a full meeting of the National Assembly's Land, Infrastructure and Transport Committee on the 12th, Land Minister Hong Ji-sun said, "The reconstruction excess-profit recapture system is intended in part to stabilize home prices, but some argue it excessively infringes on property rights. I will examine the matter from multiple angles."
That said, not all of Seoul is weakening. Demand remains robust in Seoul's outskirts, driven by genuine housing needs, and in southern Gyeonggi Province, buoyed by the semiconductor boom. Giheung District in Yongin rose 0.63%, Yeongtong District in Suwon 0.60%, and Dongtan District in Hwaseong 0.56%, continuing their upward march.
