The real estate market is difficult to read. Buying a home is equally challenging. The government’s policies are no exception. This is where the complex nature of real estate begins.
The administration of President Lee Jae-myung has focused on stabilizing housing prices, starting with Gangnam.
Since taking office, President Lee has prioritized housing price stability, stating, "We will do whatever it takes to control housing prices." He implemented a series of measures, including land transaction permission zones, total loan management, and the resumption of increased transfer taxes for multiple homeowners. Gangnam was the primary target, as it symbolizes Seoul's housing market and serves as a testing ground for regulatory effectiveness.
On February 3, he shared a report on social media indicating an increase in listings in the three Gangnam districts, calling out reports claiming no effect or lack of inventory as false. However, after the third week of February, apartment prices in the three Gangnam districts began to decline, with Gangnam experiencing 12 weeks of stagnation or decline. Analysts noted that the layered regulations were holding back the Gangnam area, leading to comments that this government was different, suggesting that the policies were effective.
However, the market responded differently.
On May 9, the exemption for increased transfer taxes on multiple homeowners ended. In the second week of May, apartment prices in Gangnam rose by 0.19%. The belief that the policies were working was shaken, as expectations that taxes would bring inventory to the market in Gangnam also faltered.
Of course, a single week of price increase cannot determine the success or failure of a policy. What matters is not just the rate of increase, but why Gangnam began to move right after the end of the transfer tax exemption. This timing itself illustrates the paradox of the policy.
The moment when taxes lock away inventory
Taxes present sellers with two choices: sell now and pay taxes, or hold off on selling. If the tax rate is manageable, taxes encourage sales, prompting sellers to list properties before the holding costs become burdensome. This was the effect the policy aimed to achieve before the end of the transfer tax exemption.
However, when the highest tax rate, including local income tax, reaches 82.5%, the calculations change. When sellers feel they will gain nothing from selling, taxes become a deterrent rather than an incentive. The paradox arises where heavier taxes do not increase inventory but instead lock it away.
Properties that were listed before the exemption ended were quickly sold. However, homeowners who remained after the exemption ended took a different approach. According to the real estate big data platform Asil, over 6,800 listings for Seoul apartments disappeared within a week after the exemption ended. The decline was particularly rapid in non-Gangnam areas such as Guro District (-16.6%), Gangbuk District (-15.2%), and Seongbuk District (-14.1%). As the number of available properties decreased, buyers faced fewer options.
In a market where demand remains, a reduction in supply strengthens price support. In real estate, supply does not only refer to new apartment deliveries; existing housing inventory also constitutes market supply. When taxes fail to motivate sellers and lock away inventory, market supply diminishes. While the government aimed to suppress demand, the actual market saw a decrease in supply first.
When taxes exceed the threshold of pressuring sales, they become a mechanism that locks away inventory. The recent rebound in Gangnam illustrates where that boundary lies.
This paradox is not new. The real estate policies of the Roh Moo-hyun and Moon Jae-in administrations were also subject to this cycle. Regulations aimed at suppressing demand reduced transactions, and the decrease in transactions increased scarcity, a pattern that has repeated multiple times. As regulations intensified, the incentive for sellers to hold onto their properties grew. When taxes and loan regulations push demand out of the market, that demand does not disappear but rather lies dormant. At the moment a small crack appears, it returns to prices. The recent rebound in Gangnam occurred within this familiar cycle.
Gangnam was not a leader but a last bastion
More important than the fact that Gangnam prices have risen is that Gangnam was the last area to do so.
For a long time, Gangnam has served as a leading indicator in Seoul's real estate market. Prices in Gangnam would rise first, followed by Mapo, Yongsan, and Seongdong, before warmth spread to the outskirts of Seoul and the metropolitan area. However, this time the order was different. Seoul moved first, and Gangnam joined last.
According to the Korea Real Estate Agency, the average increase in the 11 districts of Gangnam was 0.24%, while the average increase in the 14 districts of Gangbuk was 0.32%. Seongbuk District saw a 0.54% increase, and Jongno District recorded a 0.36% increase, marking the highest weekly rates since records began in 2012. While Gangnam's 0.19% increase is notable, the speed of growth in Gangbuk and non-Gangnam areas is even more significant. While Gangnam remained stagnant for 12 weeks, districts like Gangseo, Seongbuk, and Gwanak in non-Gangnam areas built momentum that surpassed the average for Seoul. Gangnam may have been restrained, but it could not contain the upward pressure across the broader Seoul market.
This does not mean that Gangnam has collapsed. On the contrary, it suggests that in this phase, Gangnam has become a last line of defense rather than the starting point of a rise. The fact that Gangnam has begun to move again indicates that the symbolic price level, which the government regulations had held, is now shaking.
The rental market had already begun to signal this shift. According to Asil, the number of rental listings in Seongbuk District dropped to 174 on May 14, down from 1,027 a year ago, representing a sixth of the previous level. When rental inventory decreases, tenants face fewer choices. They may have to accept higher rents, switch to monthly rentals, or return to buying.
This pressure has also affected the sales market. In Seongbuk District, the Gileum New Town 9 Complex's 84 square meter units have repeatedly set new price records this year, indicating that buying interest in non-Gangnam areas has already begun to heat up. By the second week of May, apartment rental prices in Seoul had risen by 2.89%, continuing a streak of 66 weeks of increases. This is not just a sales issue but a broader cost of living concern. While news of Gangnam's price increase has only recently made headlines, the market had already been moving under the pressures of rental shortages and rising prices in non-Gangnam areas.
Demand in Gangnam cannot be explained solely by investment interest. It is driven by structural factors such as school districts, proximity to workplaces, and expectations of redevelopment. Such demand does not simply vanish due to taxation. When it remains outside the market, it returns once price cracks appear. Regulations targeting Gangnam reduce the number of properties available for sale, thereby increasing Gangnam's scarcity. The number of buyers remains while the number of sellers decreases, creating a structural imbalance.
Concerns about supply also linger. According to Real Estate R114, the number of new apartments in Seoul is expected to decrease from around 17,000 this year to about 8,000 by 2028. If tax changes were the direct catalyst for the rebound in Gangnam, the rental crisis and supply shortages had already been exerting structural pressure on the market.
The warning left by the May rebound in Gangnam
The May rebound in Gangnam is not merely a one-week price fluctuation. It signals how taxes operate in the market. The government aimed to draw inventory into the market through taxation, but instead, inventory decreased after the exemption ended. When taxes fail to change seller behavior, regulations result in locking away supply rather than suppressing demand.
The next variable is the tax reform expected in July, which includes strengthening property taxes for non-resident homeowners and reducing long-term holding exemptions. However, the lesson from the recent transfer tax situation is clear. It is more important to ensure that actual inventory comes to market than to impose heavier taxes. If sellers' calculations shift back to "holding rather than selling," the market is likely to respond in kind.
Taxes can be a tool to suppress housing prices. However, once they lock away inventory, they become a mechanism that supports prices. The warning left by the May rebound in Gangnam lies here: the critical factor is not the intensity of the tax but whether it draws sellers into the market or keeps them locked out.
* This article has been translated by AI.
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