As heavier capital gains taxes on multi-home owners resume on the 10th of this month, Cheong Wa Dae (the Presidential Office) has decided to restructure the long-term holding special deduction for single-home owners who do not live in their properties, shifting the benefit toward actual residents.
Kim Yong-beom, Chief of Policy at the Presidential Office, signaled the revision at a press briefing on Thursday. "The current long-term holding special deduction provides 40 percent each for residence and ownership, and we need to consider whether this aligns with a framework centered on actual residents," he said. His remarks suggest the ownership-based deduction ratio could be reduced. Kim added that exceptions for non-resident single-home owners would be designed to avoid problems by comprehensively reflecting various cases.
The current long-term holding special deduction system was introduced in 1989 to encourage long-term home ownership and protect end-users. Single-home owners who have lived in their property for two years or more are exempt from capital gains tax if the transfer price is 12 billion won or less. Even if the price exceeds 1.2 billion won, owners who have held and lived in the home for 10 years or more receive a deduction of up to 80 percent of the transfer gain. The government's move to pull out the long-term holding deduction restructuring card, following heavier capital gains taxes on multi-home owners, is intended to encourage listings and stabilize housing prices. Yet it remains questionable whether a policy dominated by regulation can actually deliver results.
In fact, Seoul apartment prices, which briefly stalled after the government's February announcement to resume heavier capital gains taxes, rose 0.17 percent in the fourth week of April, turning back to an upward trend. A bigger problem is the "jeonse crevasse," or rental cliff. According to KB Real Estate, jeonse (a Korean lease system requiring a large lump-sum deposit instead of monthly rent) and monthly rent listings plunged 32 percent from 44,424 units at the start of the year to around 30,000 recently. Due to the supply shortage, the jeonse supply-demand index soared to 108.4, the highest level since 2021. The average jeonse price for Seoul apartments reached a record 681.47 million won as of April, a backlash produced by layered regulatory real estate policies.
Real estate policy cannot be expected to produce proper results when it ignores market principles and focuses solely on regulation. The government should take the Moon Jae-in administration, which invited a real estate crisis by unleashing tax regulations without meaningful supply measures, as a cautionary lesson. The government must abandon its "policy impatience" of pouring out half-baked measures and instead prepare a package policy that combines housing supply with taxation, finance, and the jeonse and monthly rent markets. It is time to urgently pursue a policy mix that can break the listing lock-up phenomenon, including easing redevelopment and reconstruction regulations, lowering transaction taxes, and stabilizing the jeonse, monthly rent, and rental markets.
