The capital gains tax surcharge on multi-home owners is imminent. From the 9th, two-home owners in designated adjustment zones will face an additional 20 percentage points, and three-home owners an additional 30 percentage points. Even with substantial capital gains, little remains after paying taxes. This is why multi-home owners began dumping properties to minimize their tax burden after President Lee Jae-myung mentioned the end of the tax moratorium on his social media on January 23. As homeless buyers absorbed these distressed listings and transactions rose, home prices in Seoul's three Gangnam districts, which had been soaring, turned downward from late February.
The impact of multi-home owner regulation did not last long. Gangnam home prices, which had turned downward, are beginning to rise again after just a couple of months, and the pace of increases is accelerating across Seoul as a whole. As transactions increase and rental listings shrink in Seoul's mid-to-lower tier districts known as "Nodogang" (Nowon, Dobong, Gangbuk) and "Geumgwangu" (Geumcheon, Gwanak, Guro), jeonse prices are surging. Attempts to rein in Gangnam home prices show signs of worsening the jeonse crunch. At this rate, both objectives could be lost.
The prevailing market view is that after the 9th, listings will be locked up and the market will face a transaction cliff. Previously, when the Moon Jae-in administration implemented the capital gains tax surcharge on multi-home owners in June 2021, listings similarly dried up, with Seoul apartment transactions plunging from 3,000 to 5,000 per month in the first half to 1,000 to 2,000 per month in the second half.
Perhaps out of such concern, Kim Yong-beom, the Presidential Office's policy chief, presented his diagnosis and outlook on market conditions in a briefing on the 4th. His conclusion: "This year will be different from 2021." His argument is that while listings may temporarily lock up and home prices may rise modestly, there is no great cause for concern because loan regulations are working powerfully and the government is pursuing across-the-board eradication of speculation through investigations not only of housing but also of farmland and non-business-use land. He also emphasized ongoing efforts to eliminate speculative elements in the financial sector not only for multi-home owners and rental businesses but also for non-resident single-home owners. Tax reforms such as reduced long-term holding special deductions and upward adjustments to the fair market value ratio are additional pillars of support.
One notable point in Kim's diagnosis is housing supply. He acknowledged that the fallout from reduced housing construction starts in 2022 and 2023 extends to this year and next, making it a difficult period on both the demand and supply sides. Real estate policies across successive administrations have swung between hot and cold, but the consistent theme has been expanding housing supply. Even during the Lee Myung-bak administration, when the real estate market was depressed due to the global financial crisis, housing supply was expanded centered on Bogeumjari housing, which ultimately led to rising unsold units under the Park Geun-hye administration. The Park administration also eased regulations and increased housing supply to stimulate the construction economy. The Moon Jae-in administration, which began amid rising home prices, poured out various regulations to suppress demand in an environment of increased liquidity from low interest rates, and was saddled with the burden of real estate policy failure. The Moon administration also wanted to expand housing supply but missed the timing while responding to surging home prices and the COVID-19 pandemic. In the final days of his term, President Moon lamented, "I deeply regret that we did not rush to expand housing supply on a massive scale earlier."
In a country where the housing supply ratio has exceeded 100%, unconditionally increasing supply is not a cure-all, but focusing solely on demand suppression through regulation when home prices rise has clear limits. Particularly in areas like Seoul, where housing supply is inelastic due to spatial constraints, bubbles are bound to occur repeatedly. That is why flexibility and continuity are needed to supply appropriately sized housing in a timely manner where demand exists.
Kim emphasized that to resolve the mismatch between housing supply and demand, the government will push supply forward as planned and quickly, as announced in last year's September 7 measures and this year's January 29 measures. Above all, public housing supply utilizing the third-phase new towns and idle land within the city must proceed without disruption, and project execution capability must be further strengthened at key metropolitan area locations including the Yongsan International Business District, the Gwacheon Racecourse and the Taereung Golf Course. In addition, the government needs to present a strong signal to the market and genuine buyers that it will dramatically improve urban planning regulations to enable high-density development in city centers and supply sufficient housing even by releasing greenbelts whose utility and preservation value have diminished. Housing market stability can only be achieved when flying on the two wings of regulation and supply.
