Seoul Housing Policy Causes Confusion Over Residency Exemption Rules

A multi-property owner surnamed A in Seoul's Seongbuk District listed a home for sale ahead of the May 9 deadline for the capital gains tax surcharge deferral. With few buyer inquiries, A agreed to extend a lease with the current tenant earlier this year in exchange for a modest deposit increase.

A's outlook changed on February 12 when the government announced it would defer residency requirements for up to two years on properties with existing tenants—temporarily opening the door to gap investment for buyers. A calculated the tenanted property could now fetch a better price.

However, when pursuing a contract with a prospective first-time homebuyer, A received notice from the local district office that the property did not qualify because the "initial lease termination date" fell in January this year.

Under the enforcement decree for the Real Estate Transaction Reporting Act promulgated on February 27, eligible transactions must involve leases or jeonse rights established as of February 12, with initial termination dates falling between November 10, 2025 and February 12, 2028. November 10 marks six months after the May 9 expiration of the capital gains tax deferral, when residency obligations take effect.

Given standard two-year lease terms, only properties with initial contracts signed between November 10, 2024 and February 12, 2025 would qualify under a strict interpretation. Leases signed after the government announcement would be deemed "gap investment vehicles" and rejected, while renewed contracts would also be excluded from the government's exit pathway.

The government opened this pathway to facilitate sales of tenanted properties, but ambiguous decree language has created confusion in the field. The crux of the dispute centers on the phrase "initial termination date."

Most local governments have adopted a conservative interpretation, viewing "initial termination date" as the end date of the original contract before any renewal. Under this reading, lease renewals or use of jeonse renewal rights during the qualifying period would constitute ordinary sales rather than permitted temporary gap investments.

Real estate agents disagree, arguing that any property with a valid lease as of February 12—renewed or not—should qualify for the residency deferral.

Adding to the controversy, many multi-property owners were unaware that qualifying lease contracts could not extend beyond February 12. One industry source said some owners rushed to renew leases after the government announcement without knowing the precise criteria, given the two-week gap before the decree was promulgated.

"If they can't get the residency deferral, there will be complaints," the source said.

As controversy mounted, the Ministry of Land, Infrastructure and Transport issued a clarification: any contract signed before the February 12 benchmark date qualifies for the residency deferral regardless of renewal or extension status.

"The intent is to prohibit further renewals of those contracts after February 12," the ministry said.