Recent changes in local real estate regulations are set to confront the growing challenge of a significant number of unsold properties in South Korea. Starting this year, the government has introduced a tax policy intended to facilitate the sale of these “malignant unsold dwellings,” potentially benefiting buyers with substantial savings. Under the revised plan, individuals purchasing unsold residential properties will be eligible for the “one household, one dwelling” exception.
This adjustment could lead to tax savings ranging from several million won to several hundred million won depending on the property’s value and the buyer’s situation, this policy aims to alleviate the burden of capital gains tax.
When buyers acquire malignant unsold properties outside the major metropolitan areas, they will now be considered single-dwelling owners, allowing them to enjoy tax incentives that were previously unavailable to multiple-home owners.
This exception applies not only to unsold homes but also to properties located in areas experiencing population decline. The urgency of this measure is underscored by the current surplus of over 10,000 unsold dwellings across the provinces. This figure has seen a dramatic increase from 6,226 units in 2022 to 14,802 units by November 2023. For instance, applying the new exception could mean dramatic financial relief for buyers.
A scenario in which an individual purchases a dwelling worth 500 million won and later sells it for 1 billion won after ten years would incur a capital gains tax of zero, a significant reduction from the previous tax liability of approximately 133 million won. However, the intended benefits may not be as favorable for owners of high-priced homes. If a property valued at 1.5 billion won appreciate to 3 billion won over a decade, the capital gains tax would decrease only slightly—from 522 million won to 520 million won—yielding a modest tax saving of about 2 million won.
The Ministry of Land, Infrastructure and Transport is optimistic that these changes will gradually alleviate the ongoing challenges with unsold properties. Historically, owners of metropolitan-area dwellings have shown hesitance to invest in provincial real estate due to the loss of favorable tax status. The acknowledgment of a single-dwelling status may incentivize these property owners to explore purchasing options in the provinces.
A ministry representative remarked, “We’ve received numerous inquiries from citizens eager for the one household, one dwelling exception to apply when buying local properties. By introducing this change, we hope to alleviate the burden of purchasing malignant unsold homes.” Despite these initiatives, skepticism remains regarding the actual revitalization of the local real estate market. Most experts argue that while tax savings are appealing, the revitalization of demand for unsold properties requires a broader resurgence in local real estate prices, the tax savings alone won’t drive buyers to procure unsold dwellings. Real purchases hinge on the anticipation of price appreciation in the market.
As the new policy comes into effect, stakeholders in the real estate market will be keenly observing both buyer behavior and market dynamics to gauge the ultimate impact of these regulatory changes.
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