President Lee Jae-myung's remarks on the phased abolition of the long-term holding special deduction are sending shockwaves through the real estate market. Experts predict that the lock-in effect on listings will intensify in the short term, while the rental market will face growing instability as jeonse and monthly rental supply plunges over the medium to long term.
According to real estate experts on Tuesday, even if the long-term holding deduction is abolished, single-home owners of high-priced properties are unlikely to immediately put their homes on the market. Since capital gains tax is only levied when a property is sold, many owners are expected to hold on to their homes, analysts said.
"Housing prices have risen considerably, so even with the long-term holding deduction benefit, the capital gains tax reduction is often not significant," said Choi Hwang-soo, an adjunct professor at Konkuk University's Graduate School of Real Estate. "Owners will choose to continue holding and pass the property on to their children." Jang So-hee, a real estate specialist at Shinhan Premier Pathfinder, added, "It is not easy for non-resident single-home owners holding high-priced properties worth more than 1.2 billion won to sell simply because the long-term holding deduction benefit is being reduced. The fact that they hold the property even without living in it means the home is likely to have high asset value."
The lock-in effect, compounded by acquisition tax and lending regulations, is another problem. Even if owners of high-priced homes sell before the deduction is abolished to receive capital gains tax benefits, moving to a home in the same price range is often impossible given acquisition tax burdens and loan limits. This is why critics point out that, contrary to policy intentions, the transaction vacuum could actually deepen.
The greater concern lies in the rental market. If non-resident single-home owners move into their own properties to meet long-term residency requirements, jeonse and monthly rental supply could plummet. "Academically, non-resident single-home owners are called 'separated households,' and they account for 5 percent of all households," said Lee Chang-moo, a professor of urban engineering at Hanyang University. "If this link is broken by a shift to own occupancy, it could not only cause jeonse and monthly rents to skyrocket but also bring the entire rental ecosystem to a halt." He added, "If single-home owners put their properties on the market and all buyers move in as intended by the president and the government, the jeonse and monthly rental market will effectively disappear."
Jang also predicted, "If non-resident single-home owners refuse tenants' requests to renew contracts in order to move in themselves, housing standards for tenants will decline alongside the reduction in rental supply." Choi likewise stressed, "With holding tax hikes on non-resident single-home owners also being signaled, the incentive to move into their own homes has grown even stronger. Rental supply will decrease sharply."
Experts agree that to minimize such side effects, a comprehensive review of transaction tax cuts must accompany capital gains tax and holding tax measures. If the expiration of the multi-home owner capital gains tax surcharge moratorium is followed by the simultaneous abolition of the long-term holding deduction and strengthened holding taxes, market shock will be inevitable without complementary measures such as acquisition tax cuts to stimulate transactions. The argument that tax policy should be comprehensively designed by dividing it into transaction taxes and holding taxes is gaining traction.
