Repercussions of the Real Estate Tax Reform: Increased Deductions for Single-Home Owners and Impact on the Rental Market

The government's latest tax reform proposal shifts the central focus of real estate tax policy from the number of homes owned to assessed value and actual residency. In particular, the upward revision of the comprehensive real estate holding tax deduction threshold for single-home owners and the proposed changes to the capital gains tax were announced as measures to stabilize the housing market. However, controversies over the actual effectiveness of these measures are gradually intensifying. A systematic review is required to determine how this reform will impact investment sentiment and the supply-demand imbalance in the rental market.

Core of the Holding Tax and Capital Gains Tax Reform

The most significant shift in this reform is the establishment of a residency-centric tax system, substantially reducing the tax burden for single-home owners who reside in their properties while strengthening taxation on non-residential homes.

Increased Basic Deduction and Stricter Residency Requirements

• Increased Basic Deduction: The basic deduction amount for a single-household, single-home owner has been adjusted upward from 1.2 billion KRW to 1.4 billion KRW (approximately 2.0 billion KRW in market value). This reflects the recent rise in housing prices, aiming to ease the tax burden on genuine homebuyers.
• Stricter Taxation for Non-Residents: Conversely, for single-home owners who do not meet actual residency requirements, the basic deduction has been inversely reduced to 900 million KRW, surging the tax burden for non-residential property holdings.

Restructuring of the Long-Term Holding Special Deduction

In the capital gains tax sector, the existing special deduction for long-term holding has been revamped into a Long-Term Residency Income Deduction. It is no longer sufficient to simply hold a property to receive tax benefits; instead, a deduction rate of up to 80% will be applied strictly in proportion to the actual period of residency. Furthermore, a cap on the previously unlimited deduction amount will be introduced, limiting it to 2 billion KRW starting in 2028 and 1 billion KRW from 2029 onwards.

Impact on the Jeonse and Monthly Rent Market and Concerns over Side Effects

During a recent real estate policy debate, focused concerns were raised regarding the potential side effects this holding tax-centric overhaul could have on the rental market.

Limitations of Alleviating Landlord Tax Burdens and Contraction of Investment Sentiment

Although temporary measures to ease heavy taxation on capital gains for multiple-home owners from 2027 to 2028 were included, the market's reaction remains somewhat limited. The drastic strengthening of residency requirements is dampening the investment sentiment of multiple-home owners and non-resident single-home owners. Market experts analyze that modifying capital gains tax relief without fundamentally easing acquisition taxes is unlikely to translate directly into an actual increase in properties for sale.

High Probability of Tax Burden Shifting to Rental Prices

The increased tax burden resulting from lowering the holding tax deduction to 900 million KRW for non-resident single-home owners is highly likely to be passed on to tenants. With rental demand for apartments remaining robust, landlords have a strong financial incentive to offset their increased holding tax burdens by converting contracts to partial-Jeonse or raising monthly rental prices.

Challenges for Supply Expansion and Policy Effectiveness

There are clear policy limitations to achieving fundamental stability in the housing market solely through tax policy revisions. Recently, a distinct presale cold wave phenomenon has been observed, with presale prospect indices dropping in core metropolitan areas primarily due to tightened lending regulations and the cumulative burden of interest rates. The government must parallel its justification for enhancing tax equity with measures for rapid housing supply—such as designating new residential sites and deregulating reconstruction—to dispel market participants' doubts about policy effectiveness.