Tax overhaul is pushing tenants out as landlords to move in

Tenants are losing their homes as landlords move to occupy their properties to comply with the tax overhaul the government announced on Monday.

The plan raises the comprehensive real estate holding tax on high-priced homes, on owners who do not live in their single property and on owners of multiple homes. It also rewrites deductions so that the benefit is based on living in the property rather than mere ownership.

"I do not know when the landlord will call," said a tenant who signed a jeonse (lump-sum deposit) contract for an apartment in Seodaemun District, western Seoul, last year. "I gave up on buying in Seoul a while ago because of the lending rules, and now even renting here feels out of reach."

The mechanism is straightforward. The holding tax has until now given owners a deduction of 20 to 50 percent based on how long they have owned a home. From 2028, that shifts in stages to how long they have lived in it. The special long-term deduction on capital gains tax moves the same way. Owners who want the deductions will need to move in or sell.

Renters say the uncertainty is the hard part.

One tenant renting an apartment of roughly 100 to 130 square meters (1,100 to 1,400 square feet), at Olympic Park Foreon in Gangdong District, eastern Seoul, took a call from the landlord on Tuesday.

"The landlord said the comprehensive real estate holding tax looked like it would come out high, so they were going to sell, and asked me to leave next year when the jeonse contract expires," the tenant said on Thursday. "I cannot even use my right to renew. I have to vacate after two years."

Nam Hyeok-u, a real estate analyst at Woori Bank, said the incentives now point one way.

"As the rules tighten around owner-occupancy, owners of homes they do not live in are more likely to move in themselves to cut their tax," the analyst said. "If rental listings thin out, jeonse and monthly rents could rise further."

The government expects multiple-home owners to put properties on the market and says that should steady prices, but most analysts are doubtful. Retirees in the Gangnam area facing higher holding taxes may sell, but that volume alone is unlikely to make a significant dent in the market.

Who can buy those homes is a further question. Under the lending rules, a home priced above 2.5 billion won ($1.8 million) qualifies for a loan of no more than 200 million won.

"Some older owners on low incomes are listing at a discount since the tax changes, but for middle-income buyers, those are out of reach," said a licensed broker in Seocho District, southern Seoul. "In the end, only rich cash buyers will pick these up at a bargain."

Apartment prices in Seoul rose for a 78th straight week, according to weekly figures the Korea Real Estate Board released on Thursday. As of Monday, sale prices were up an average of 0.26 percent from the previous week.

The increases were largest outside the traditionally expensive districts. Jung District, central Seoul, led at 0.54 percent, followed by Jungnang District, eastern Seoul, at 0.52 percent, Seongbuk District, central Seoul, at 0.49 percent and Nowon District, northern Seoul, at 0.46 percent. Gains slowed in Gangnam, Seocho and Songpa districts as buyers waited to see how the tax plan lands.

Jeonse prices followed the same pattern. Seongbuk at 0.49 percent, Nowon at 0.42 percent and Geumcheon District, southern Seoul, at 0.38 percent all ran well above the Seoul average of 0.25 percent.

"The tax plan does not look likely to do much for prices in the mid- and lower-priced districts," Nam, the Woori analyst, said. "If fewer rental listings push more people toward buying, prices could keep rising."

BY KIM JUN-YOUNG [cho.yongjun1@joongang.co.kr]