The government is reviewing a plan to further extend a special exemption from the owner-occupancy requirement for homes in land-transaction permit zones, which is set to expire at the end of this year. The move is aimed at preventing the land-transaction permit system from undermining the intended effect of tax measures designed to encourage homeowners to sell.

Apartment and villa complexes in Seoul as seen from Seoul Sky, the observation deck of Lotte World Tower in Songpa-gu [Yonhap]
Apartment and villa complexes in Seoul as seen from Seoul Sky, the observation deck of Lotte World Tower in Songpa-gu [Yonhap]

Related ministries said Sunday the government is coordinating the details of a plan to expand the owner-occupancy exemption under the land-transaction permit system, with a release targeted as early as this month.

Discussions within and around the government have centered on extending the deadline for land-transaction permit applications — beyond which the owner-occupancy requirement is deferred — past the end of this year, to align with tax policy measures promoting home sales, including a temporary easing of the capital gains tax surcharge on multi-home owners.

Lee Hyeong-il, first vice minister of the Ministry of Economy and Finance, said Thursday on "Fact Bangatgan," a policy communications program on Cheong Wa Dae's YouTube channel, that the government is "currently preparing a plan to further expand the owner-occupancy requirement deferral" in response to the difficulty of selling homes under the land-transaction permit system.

Under the current enforcement decree of the Act on Report on Real Estate Transactions, a buyer who purchases a home for residential purposes in a land-transaction permit zone must move in within four months of receiving approval and reside there for two years.

However, the government currently allows a first-time homebuyer to defer the owner-occupancy requirement until the first expiration of an existing lease, provided the home was under a lease as of May 12 this year.

The temporary measure was introduced after the Oct. 15 package last year designated all of Seoul and 12 areas in Gyeonggi Province as land-transaction permit zones, raising concerns that buyers would be unable to move in within four months when an existing lease remained in place. The current exemption applies only to land-transaction permit applications submitted by Dec. 31 this year.

The government is looking at extending the exemption because a timing gap has emerged between the recently announced tax reform package and the existing land-transaction permit rules.

The tax reform bill temporarily lowers the capital gains tax surcharge rate applied to multi-home owners for the next two years, while phasing out tax benefits for rental apartments purchased in designated adjustment zones. The intent is to reduce the cost of selling for multi-home owners and weaken the incentive for rental operators to hold properties, pushing more homes onto the market.

But if the deadline for land-transaction permit applications eligible for the owner-occupancy deferral ends as scheduled at year's end, transactions involving tenant-occupied homes will become significantly more difficult starting next year. Even if tax adjustments encourage homeowners to sell, the land-transaction permit system could constrain transactions and blunt the supply expansion the government is counting on.

The government is also in final talks on adjusting the lease reference date, currently set at May 12 this year, alongside extending the exemption period. The aim is to move the reference date closer to the present, broadening the range of tenant-occupied homes eligible for sale and allowing the tax reform to translate more smoothly into actual property disposals.

A complicating factor is that overly broadening the owner-occupancy deferral could encourage so-called gap investment — buying homes with sitting tenants — and other speculative demand. Related ministries are expected to continue reviewing the specific eligibility conditions for the exemption.

The Ministry of Land, Infrastructure and Transport, which oversees the land-transaction permit system, said it is reviewing the owner-occupancy deferral plan together with the Ministry of Economy and Finance, but that the specifics — including whether the exemption will be expanded — have not yet been finalized.

Separately, the government is moving quickly to prepare follow-up measures after announcing the tax reform bill. It plans to spell out in enforcement decrees the specific exceptions under which a person would not be treated as a non-resident for purposes of the comprehensive real estate tax and the long-term residency income deduction under capital gains tax rules.

Financial measures covering housing supply and mortgage lending are also expected to take shape soon. Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol said Friday in a radio interview that the government would "make every effort to accelerate housing supply and address the financing difficulties faced by those without homes, young people and newlyweds, through a comprehensive set of measures."


y2k@heraldcorp.com