The June 3 local elections, which had been trending in favor of the ruling Democratic Party of Korea, are showing signs of volatility amid a controversy over property taxation. The People Power Party is seizing on public concerns about the ruling bloc's successive regulatory tightening measures, including holding tax reform, aimed at stabilizing housing prices. The Democratic Party moved swiftly to contain the fallout from President Lee Jae-myung's remarks on abolishing the long-term holding special deduction, saying "there is no plan to abolish it," while the People Power Party escalated its offensive by warning that "a tax bomb will become reality."
Kang Jun-hyun, spokesperson for the Democratic Party, told a press briefing on the 20th that "the abolition of the long-term holding special deduction has not been under review." Earlier, President Lee wrote on X (formerly Twitter) that "the long-term holding deduction is a system that drastically reduces capital gains tax solely on the grounds of long-term ownership," adding that "if it is stipulated in law that the deduction cannot be revived, even a change of administration would not allow a president to alter it at will." Prior to that, 10 pro-ruling lawmakers, including Rep. Yoon Jong-oh of the Progressive Party, stirred controversy by introducing an amendment to the Income Tax Act that would abolish the current long-term holding deduction and cap the tax deduction at 200 million won ($145,000) for individuals transferring homes held for three years or more.
Kang explained that the president's remarks were intended as a warning against property speculation. "President Lee is taking a very cautious view on the issue of purchasing homes for speculative purposes as part of real estate policy," he said, stressing that "there should be no tax burden on those who hold property legitimately."
The fact that a ruling party spokesperson, rather than a presidential aide, actively defended the president's remarks is interpreted as reflecting a sense of crisis that real estate could become a key variable in the June 3 local elections. Supply shortages and rising home prices remain the ruling bloc's Achilles' heel. Since President Lee's inauguration, Seoul apartment prices rose about 9% last year, marking the highest rate of increase in 19 years since 2006. Through early April this year, the rate of increase in Seoul apartment prices reached 2.25%, roughly double that of the same period a year earlier.
Amid such concerns, Democratic Party candidates running in the local elections are pledging to boost private redevelopment and reconstruction — a stance at odds with the presidential office's "demand suppression" approach. However, their room to maneuver is limited, given the risk of clashing with the government's policy direction. Jung Won-oh, the Democratic Party's Seoul mayoral candidate, emphasized shortening administrative procedures for private redevelopment projects during a meeting with heads of redevelopment and reconstruction associations in Seoul. Yet it is not easy to accept the demands raised at the meeting for legal and institutional reforms, including easing the reconstruction excess profit recapture system, easing the price cap on new apartments, lowering redevelopment consent thresholds, and relaxing loan regulations on multi-home owners. "The policy proposals Jung received call for easing regulations on private redevelopment projects and loan rules," a real estate industry official said. "They run directly counter to the Lee Jae-myung administration's policy direction, so realization will not be easy."
Mixed signals among the ruling party, government, and presidential office are also fueling doubts about the ruling bloc's real estate policy. The controversy over holding taxes is a prime example. The debate began when Rep. Jin Sung-joon of the Democratic Party mentioned that "a holding tax hike could be included in the July tax reform plan." Hong Ik-pyo, the presidential office's senior political affairs secretary, subsequently drew a line, saying "nothing has been planned," but the confusion grew when Deputy Prime Minister and Finance Minister Koo Yoon-cheol said that "a holding tax could also be reviewed while watching market conditions."
The People Power Party is focusing its attacks on real estate, the Democratic Party's weak spot. Oh Se-hoon, the People Power Party's Seoul mayoral candidate, criticized President Lee's remarks on the long-term holding deduction, saying "those who have held and resided in homes for a long period have nothing to do with speculators seeking short-term gains." He added that the remarks amounted to "an idea of labeling even such people as potential speculators and collecting more taxes from them." Addressing Jung, Oh asked, "Do you support abolishing the long-term holding deduction? As a Seoul mayoral candidate, will you turn a blind eye to the enormous harm to citizens and remain silent before an oppressive administration?" He argued that "once the real estate policy showdown with the Democratic Party takes center stage in the election, the approval rating gap will narrow to around 3 percentage points."
