The government adjusts tax policies to alleviate burdens on homeowners and address market concerns
Category: Politics
In a rapidly changing real estate market, South Korean homeowners are feeling the weight of new tax reforms introduced by the government. The recent adjustments to the property tax system, particularly concerning the comprehensive real estate tax (종합부동산세, or 종부세) and capital gains tax (양도소득세), have left many residents, especially seniors, anxious about their financial futures.
The core issue revolves around the government's proposed reforms aimed at easing the tax burden on homeowners, particularly those who own a single property. With the real estate market fluctuating and housing prices soaring, for homeowners trying to navigate these new regulations.
On August 3, 2026, the South Korean government announced a comprehensive tax reform plan that aimed to shift the focus of property taxation from ownership duration to actual residence. This shift was intended to encourage homeowners to occupy their properties rather than hold them as investments. Following public backlash and concerns about the potential impact on homeowners, the government revised its initial proposals on September 1, 2026.
The revised plan maintains the basic exemption for non-resident homeowners at 12 billion won, up from an earlier proposal to reduce it to 9 billion won. This decision was made in response to fears that reducing the exemption would disproportionately affect those unable to reside in their properties due to various circumstances. For couples owning properties jointly but not residing in them, the exemption was increased to 6 billion won per person, totaling 12 billion won.
The comprehensive real estate tax is set to undergo substantial changes. The government has decided to keep the tax burden cap at 150%, retracting an earlier proposal to raise it to 200%. This decision reflects the government's attempt to alleviate fears of excessive tax burdens resulting from rising property values.
For example, the annual tax for a non-resident homeowner in Banpo-dong, Seocho-gu, who owns a 84 square meter apartment was projected to be approximately 33.18 million won under the initial proposal but is now expected to drop to around 26.41 million won with the revised plan. Similarly, for a property in Mapo-gu, the tax is expected to decrease from 7.77 million won to 6.05 million won.
In tandem with the changes to the comprehensive real estate tax, the capital gains tax structure will also see modifications. The long-term holding special deduction (장기보유특별공제) will be replaced by a long-term residential income deduction (장기거주소득공제). Starting in 2028, the deduction will be based solely on the period of residence, with an annual deduction rate of 6% for residents and 2% for those holding properties without residing in them.
From 2028 onwards, the maximum deduction limit will be capped at 20 billion won, decreasing to 10 billion won in 2029. This means that the timing of selling a property will significantly impact the tax obligations of homeowners, requiring careful consideration of when to sell to maximize deductions.
As these tax reforms take shape, homeowners are urged to reassess their property holdings and financial strategies. The government’s intention is clear: it wants to encourage actual occupancy of homes rather than speculative holding. This has led to a growing concern among homeowners about the potential for a "property lock-in effect," where individuals may choose to hold onto their properties rather than sell, fearing increased tax burdens.
Experts suggest that homeowners should carefully evaluate their financial situations in light of these tax changes. For those over 65 years old, there are provisions for tax deferral if they have lived in their properties for over ten years and meet specific income criteria. This could provide some relief for older homeowners who find themselves cash-strapped due to rising property taxes.
The revised tax reforms are currently under discussion in the National Assembly, where additional adjustments may still be made. Government officials have indicated a willingness to adapt the proposals based on feedback from lawmakers and the public. As the debate continues, the outcome will likely influence the real estate market significantly.
Economists predict that the easing of tax burdens for non-resident homeowners might reduce the urgency to sell properties, thereby limiting the influx of new listings in the market. This could stabilize rental prices as existing rental units remain occupied, but it also raises concerns about potential long-term price increases in desirable neighborhoods.
With the government’s commitment to maintaining a balance between tax fairness and market stability, homeowners must remain vigilant. The changes to the comprehensive real estate tax and capital gains tax signal a shift in how property ownership is viewed in South Korea. Homeowners should prepare for a future where actual residence is prioritized over mere ownership.
As the legislative process continues, the final form of these tax reforms will emerge, potentially reshaping the real estate market for years to come. Homeowners are advised to stay informed and consult with tax professionals to navigate the implications of these changes effectively.
Tax expert Song Joo-young notes, "Homeowners must assess their unique situations and plan accordingly, especially with the upcoming changes in tax deductions and exemptions. Each homeowner’s strategy will differ based on their financial situation and property holdings."