Holding and transfer taxes tightened simultaneously, clouding prospects for new listings

Three-home owners face 5.1-fold higher comprehensive real estate tax than single-home owners

Strengthened holding tax aligns with OECD guidance, but heavier transfer tax does not

National Assembly review begins this month; some revisions possible

The National Assembly Budget Office has warned that the government's proposed tax code revision could undermine efforts to bring more homes onto the market by tightening both property holding taxes and capital gains taxes at the same time. An analysis by the office found that, despite scrapping the tiered tax rates based on the number of homes owned under the comprehensive real estate tax, the government's plan preserves differentiated basic deductions and fair market value ratios — meaning the tax gap between single-home and three-home owners would actually widen. The office also raised concerns that a reform centered on owner-occupancy could reduce the supply of rental housing and push up jeonse and monthly rent prices.

A view of the Jongno and Seodaemun-gu areas as seen from Namsan in Seoul [Yonhap]
A view of the Jongno and Seodaemun-gu areas as seen from Namsan in Seoul [Yonhap]

According to the National Assembly, the budget office analyzed the impact of the government's real estate tax overhaul on housing ownership and disposal in a report titled "Analysis of the 2026 Tax Code Revision," published recently. The core of the government's proposal is to raise the fair market value ratio and tax rates under the comprehensive real estate tax, while converting the long-term holding special deduction for capital gains tax into a residency-period-based system and introducing a new deduction ceiling.

The budget office found that, except for some lower tax base brackets for owner-occupying single-home holders, the comprehensive real estate tax burden would broadly increase, and capital gains taxes would also be tightened, particularly for high-value non-owner-occupied homes. The office said that while a heavier comprehensive real estate tax raises the cost of holding property and encourages sales, a heavier capital gains tax could have the opposite effect — prompting owners to delay selling and opt instead for inheritance or gifting.

Under the government's plan, the long-term holding special deduction would be phased out by 2029 and replaced with a "long-term residency income deduction" based on the period of actual occupancy. The deduction ceiling would be set at 2 billion won ($1.5 million) per person per year and per property transferred in 2028, falling to 1 billion won from 2029 onward. From 2029, the holding-period component would be removed entirely from the deduction calculation, meaning homes where the owner did not actually reside for long would face a significantly larger capital gains tax burden.

The plan also includes a temporary reduction in the heavy capital gains tax surcharge on multi-home owners in designated adjustment zones for 2027 and 2028.

However, the budget office projected that even with the temporary surcharge reduction, the overall tax relief would be smaller than under the previous surcharge exemption measures, and the effect on bringing listings to market would be limited — because the plan does not extend the long-term residency income deduction to homes subject to the surcharge, unlike the earlier exemption regime. The office also pointed to the temporary surcharge suspension in May 2022, when no clear surge in new listings was observed as it coincided with a period of sharply rising interest rates.

The budget office also flagged that the comprehensive real estate tax overhaul would actually widen the tax burden gap between owners based on the number of homes held. Although the government is abolishing the tiered tax rates by number of homes, it is retaining differentiated basic deduction amounts and fair market value ratios. From 2028 onward, the fair market value ratio would be set at 70 percent for households owning one home and 80 percent for those owning three.

Assuming the publicly assessed price equals 69 percent of the market value, the budget office found that for a total housing value of 3 billion won, the comprehensive real estate tax for a single-home owner would fall from the current 2.11 million won to 1.84 million won in 2028, while the bill for a three-home owner would rise from 3.42 million won to 9.4 million won. As a result, the three-home owner's tax burden would expand from 1.6 times to 5.1 times that of the single-home owner.

These figures assume the single-home owner lives in the property without claiming the senior or long-term holding tax credits, while the three-home owner resides in one of three homes of equal value. The budget office said the widening gap in tax burdens for homes valued below 8 billion won does not serve the goal of improving tax equity, and called for a review of whether a rate structure based on home prices is consistent with a deduction framework that varies by number of homes owned.

The office also expressed concern about the impact on the rental market. If holding taxes on non-owner-occupied homes increase and tax benefits become tied to residency periods, owners would have an incentive to move into their own properties to reduce their tax bills. In that case, the supply of homes available for rent would shrink, putting upward pressure on lease prices.

The OECD and other bodies have long recommended that South Korea ease the tax burden at the transaction stage and strengthen it at the holding stage. The budget office assessed that the current overhaul aligns with that guidance on the holding-tax side, but runs counter to it by also tightening the capital gains tax — since, while capital gains tax differs in nature from transaction taxes such as acquisition tax, it still concentrates the tax burden at the point of disposal and can delay sales.

The budget office said that because acquisition tax, a local levy, was excluded from the current overhaul, the government needs to set out a comprehensive direction for real estate tax reform covering both national and local taxes. It also recommended reviewing the past effects of tightened holding and capital gains taxes on the housing market and urged the swift implementation of existing housing supply measures.

The government's tax revision package will go through National Assembly review beginning this month. The ruling party has indicated it will preserve the broad framework of the real estate tax overhaul while addressing certain issues, including the long-term holding special deduction for capital gains tax, leaving open the possibility that parts of the government's plan could be revised during deliberations.


y2k@heraldcorp.com