Will the Single-Home Capital Gains Tax Deduction Be Abolished? Housing Price Expectations Hit Record High of 127
As the government considers abolishing the long-term holding tax deduction for single-home owners in favor of actual residency rules, the Housing Price Expectation Index hit a 5-year high of 127, reflecting surging market sentiment.
[Summary] The South Korean government is reviewing a plan to overhaul the 'Special Deduction for Long-Term Holding' of capital gains tax for single-home owners, shifting the focus entirely to actual residency. Concurrently, the Housing Price Expectation Index for July reached 127, a nearly 5-year high, signaling widespread anticipation of rising housing prices.
Capital Gains Tax Shift: From 'Holding' to 'Residency'
Historically, single-home owners could enjoy up to an 80% special deduction simply by holding their property for a long period. However, deeming this structure overly beneficial to owners of ultra-high-net-worth properties, the government is discussing abolishing the simple 'holding deduction' and expanding the 'residency deduction'.
- Stricter Residency Rules: Tax benefits will be strictly proportional to the actual period of residency.
- Limits on Luxury Homes: Total deduction amounts for high-value homes may be capped at around 1 billion KRW.
- Protecting Real End-Users: Those who actually reside in their homes for over 10 years will still maintain up to an 80% deduction.
This proposal is likely to be included in the upcoming tax reform announcement this August. If passed, it is expected to take effect as early as 2028, following a grace period of at least one year.
Housing Price Expectation Index Soars Past 127
Amidst tax reform discussions, the real estate market is heating up. According to the Bank of Korea's July consumer survey, the Housing Price Expectation Index recorded 127. This is a 7-point jump from the previous month and marks the highest level in 4 years and 10 months, since September 2021 (128).
An index reading above 100 means more consumers believe housing prices will rise over the next year than fall. Despite looming tighter mortgage regulations, buying sentiment remains strong, driven by simultaneous increases in both transaction and jeonse (deposit-based lease) prices, particularly in the Seoul metropolitan area.
FAQ: Real Estate Tax and Market Outlook
Q1. When will the abolition of the long-term holding deduction take effect?
It is currently under internal review by the government. Concrete details will be revealed in the tax reform announcement in early August. Even if the law is revised, it is expected to have a grace period of at least one year.
Q2. Are there any disadvantages to selling my house right now?
No. At this point, the existing special deduction for long-term holding for single residential homes (up to 80% based on holding and residency periods) remains unchanged under current law.
Q3. Why are housing price expectations hitting a record high despite tighter loan rules?
Concerns over a shortage of new housing supply in the metropolitan area, combined with steadily rising jeonse prices, have stimulated anxiety among actual home buyers. Expectations of future interest rate cuts have also fueled the widespread belief that the upward trend will continue for the time being.