The South Korean government's follow-up real estate measures are taking shape through a "targeted approach" rather than broad regulatory changes. Tax burdens will increase for high-value and non-residential properties based on both the number of homes owned and their value, while maintaining total loan limits in the financial sector, allowing only down payment loans for certain new apartments nearing occupancy.
According to relevant authorities on August 2, the Ministry of Economy and Finance's tax reform plan and the Financial Services Commission and Ministry of Land, Infrastructure and Transport's housing finance and supply measures are expected to be announced with a certain time lag. The financial and supply measures may be revealed as early as mid-August, following the tax reform announcement.
The core of the tax reform focuses on refining the criteria from "how many homes are owned" to "what is the value of the home and for what purpose is it owned." Homeowners of a primary residence valued below a certain threshold may see their comprehensive real estate tax and capital gains tax burdens maintained or reduced, while those owning high-value or non-residential properties, as well as multiple homeowners, may face increased burdens.
During the national discussion on real estate policy held on July 27, proposals were made to set limits on the tax exemptions for high-value single homeowners and to shift the tax credit for non-residential single homeowners from mere ownership to actual residency. Adjustments to the basic exemption, market value ratio, and tax rates for multiple homeowners were also discussed. However, these remain at the proposal stage, with specific criteria and rates yet to be finalized.
There is a strong possibility that the long-term capital gains tax exemption will also be revised to focus on actual residency. Under the current system, single homeowners can receive up to a 40% exemption on capital gains based on the length of ownership, even if they do not reside in the property. When combined with residency period exemptions, the total exemption rate can reach up to 80%.
The government is considering reducing or eliminating exemptions based solely on ownership duration and increasing the weight of exemptions based on actual residency. However, to prevent a sudden spike in tax burdens, the focus is likely to be on high-value and non-residential properties rather than mid- to low-priced homes.
In contrast, financial policies are expected to maintain a more conservative stance than tax measures. Financial authorities are preparing to support buyers of new apartments who are unable to secure down payment loans due to total household loan management, but existing home buyers will not be included in this support.
The support will primarily target buyers who signed contracts before the June 27 measures were implemented last year and are currently preparing to move in. Financial authorities believe it is difficult to treat buyers of existing homes who signed contracts this year under the same conditions as those who applied before the regulations were enforced.
On July 28, financial authorities requested that the five major banks—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup—ensure that down payment loans for actual users of new apartments nearing occupancy are processed smoothly. In some new complexes, collective down payment loans are being executed based on the banks' autonomous judgments. A financial authority official stated, "Smooth supply of down payments is essential for the occupancy of new apartments."
Conversely, there is a reluctance to uniformly increase the loan-to-value (LTV) ratio for young couples and first-time homebuyers. In a situation of supply shortage, expanding loan limits could lead to increased home prices, stimulating buyer demand.
The expectation of rising home prices remains a significant factor complicating the easing of loan regulations. The Bank of Korea's housing price outlook index for July rose to 127, up seven points from the previous month, marking the highest level since September 2021. This indicates an increase in consumers expecting home prices to rise over the next year.
The increase in household loan growth that banks must manage this year is also capped at 1.5%. As the scale of support for down payment loans for new apartments increases, banks may reduce other mortgage or credit loans, creating a balloon effect. Financial authorities are currently estimating the demand for down payment loans in the second half of the year and the resulting increase in household loans.
The government is also considering expanding financing for suppliers rather than broadly loosening housing purchase funds for consumers. This includes increasing public guarantees for project financing (PF) for non-apartment and rental housing projects to support construction and supply. The rationale is that providing funds for developers to build homes, rather than lending more money to individuals to buy homes, could help mitigate price increases.
A real estate industry official stated, "The government's measures will differentiate support and regulation based on actual residency and housing prices in taxation, and on contract timing and actual supply effects in finance. This structure aims to protect actual residents of mid- to low-priced homes while increasing tax burdens on high-value and non-residential properties, supporting new apartment occupancy while blocking loan relaxations that could stimulate demand for existing home sales."
However, as the criteria for policies become more detailed, debates over fairness for actual users on the margins may intensify. Issues such as how to distinguish between single homeowners who temporarily cannot reside due to work or children's education, and whether it is reasonable to treat existing home buyers differently from new apartment buyers, will be contentious points.
Professor Kang Seong-hoon of Hanyang University stated, "It is important to reach a social consensus through various discussions on the criteria for high-value homes."
* This article has been translated by AI.
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