The South Korean government ended the capital gains tax surcharge exemption for multiple homeowners in May and signaled potential reforms to the registered rental housing system last month, drawing criticism for a tax-focused approach to real estate policy. The moves aim to encourage multiple homeowners to release properties into the market. Critics argue the government overlooked the need for complementary measures addressing overall market supply and demand, such as preserving the registered rental system's benefits or implementing construction-based rental supply policies.
According to the real estate industry on the 7th, the government mentioned the possibility of reforming the capital gains tax surcharge exemption applied to registered rentals, following the resumption of the capital gains tax surcharge for multiple homeowners in May. The capital gains tax surcharge is a system that increases tax rates based on the number of homes owned when selling properties in adjustment target areas. After being suspended since May 2022 due to considerations of tax equity between residential and non-residential properties, it resumed application in May this year.
National Tax Service Commissioner Lim Gwang-hyun raised the possibility of reforming the registered rental purchase system, which exempts multiple homeowners with registered rentals from capital gains tax surcharges, via X (formerly Twitter) last month.
![Seoul Songpa District Office Urban Rental Business Civil Service Office]()
Seoul Songpa District Office Urban Rental Business Civil Service Office [Source: Yonhap News file photo]
Government Adjusted Registered Rental Policy Through Tax Changes Since 2017
While some supported the resumption of capital gains tax surcharges citing excessive exemption benefits, counterarguments emerged that the government failed to consider the private sector's share in the rental market and rental supply volumes when implementing tax reductions. This means measures beyond tax policy should have been implemented in parallel.
According to the Ministry of Land, Infrastructure and Transport, as of 2022, public rental housing totaled 1.86 million units (22%), while private rental housing (including registered and unregistered) reached 6.58 million units (78%). Registered rentals have a particularly large share of non-apartment properties. According to the Korea Landlords Association, as of the end of last year, non-apartment properties accounted for 71% (690,000 units) of registered rentals nationwide and 83% in Seoul.
The Korea Landlords Association stated last month that the average registered rental rates in Seoul were half of market rates as of 2024, pointing out that abolishing the surcharge exemption could undermine housing stability. The registered rental system is a representative system that has been adjusted primarily through tax benefits.
The government introduced various reductions including acquisition tax from 2017 to activate registered rentals, but imposed capital gains tax on registered rentals in adjustment target areas in 2018 and reduced acquisition tax and property tax benefits in 2019. Until some systems including short-term rentals were abolished in 2020, the government essentially approached the issue through tax policy.
Song Seung-hyun, CEO of City and Economy, stated, "As jeonse converts to monthly rent, prices need many tradable volumes to stabilize, but there is no volume to meet that demand now," adding, "There is a need to implement policies with more flexibility."
Industry Experts Propose Supply-Focused Alternatives to Tax-Only Approach
Proposals emerged to prepare improvement plans focusing on the registered rental system's positive function of housing stability while considering tax equity. People's Solidarity for Participatory Democracy presented improvement plans for the registered rental system in April, including mandatory rental housing registration and abolition of 6-year short-term rentals.
While noting the need to reduce excessive tax benefits, the organization stated the necessity of maintaining the registered rental system, citing its contribution to housing stability through measures like limiting rent increase rates to 5%.
Opinions also emerged that rental supply measures such as construction-based rentals should be prepared rather than focusing on taxation based on the number of homes. Chae Sang-wook, CEO of Connected Ground, stated, "Taxation should be based on total holdings, but taxing based on the number of homes caused the sale of regional properties," adding, "The past housing rental business system only activated purchase-based rentals without increasing total volume, so a system providing incentives to construction rental companies should be established to achieve supply."
FAQ
What did the South Korean government do regarding multiple homeowner taxes in May?
The South Korean government ended the capital gains tax surcharge exemption for multiple homeowners in May. The capital gains tax surcharge increases tax rates based on the number of homes owned when selling properties in adjustment target areas. This measure had been suspended since May 2022 but resumed application in May this year.
Why are critics concerned about the government's registered rental system reforms?
Critics argue the government is taking a tax-focused approach without considering the private sector's significant share in the rental market or implementing complementary supply measures. As of 2022, private rental housing accounted for 6.58 million units (78%) compared to 1.86 million public rental units (22%). The Korea Landlords Association stated that average registered rental rates in Seoul were half of market rates as of 2024, warning that abolishing tax exemptions could undermine housing stability.
What alternative approaches have experts proposed for South Korea's rental housing policy?
Experts proposed supply-focused alternatives including construction-based rental incentives and taxation based on total property holdings rather than the number of homes owned. Chae Sang-wook, CEO of Connected Ground, stated that a system providing incentives to construction rental companies should be established to increase total supply volume. People's Solidarity for Participatory Democracy suggested maintaining the registered rental system's positive functions like the 5% rent increase rate limit while implementing improvements such as mandatory rental housing registration.
