With the reinstatement of heavy capital gains tax for multiple homeowners starting on the 10th, land transaction permit applications surged on the 9th, the last day of the tax deferral period.

As some autonomous districts in Seoul and Gyeonggi Province continued to accept land transaction permit applications to allow property owners to benefit from the capital gains tax deferral until the final day, the district offices saw a steady stream of citizens seeking last-minute permits from the morning.

Market observers commented, "Some sellers and buyers who had been in a prolonged tug-of-war over prices finally made decisions at the last minute," and added, "While a transaction cliff is expected as properties owned by multiple homeowners are withdrawn from the market, additional distressed sales of non-resident single-home properties may emerge."

 On May 9th, the last day of the capital gains tax deferral for multiple homeowners, citizens are seen consulting with officials at a temporary land transaction permit application desk set up at the Songpa District Office in Seoul. [Yonhap News]

◇ On the Last Day of Capital Gains Tax Deferral: "Last-Minute Applications by Sellers and Buyers Who Held Out"

It was May 9th, the final day of the capital gains tax deferral for multiple homeowners.

While real estate agencies in Seoul were generally quiet, inquiries from multiple homeowners seeking to avoid the heavy capital gains tax and buyers looking to purchase properties with existing leaseholds continued until the very end.

A licensed real estate agent in Jamsil-dong, Songpa-gu, stated, "After March, distressed properties were sold off, and prices began to rise again. I understand that a unit of 98㎡ was sold as a distressed sale on the 8th, and the permit application was filed on the 9th. The seller wanted to sell at a high price, and the buyer wanted to purchase at a low price with a leasehold, leading to a long negotiation over the price. Ultimately, they reached an agreement as the deadline approached."

According to local real estate agencies, two distressed properties in the Guhyeon University Apartment complex in Apgujeong-dong, Gangnam-gu, Seoul, were sold on the 8th, indicating that urgent sellers had significantly lowered their prices to sell this month.

The head of a real estate agency in Apgujeong-dong explained, "Once the project implementation approval is filed for Zone 2 or Zone 3 of Apgujeong, the transfer of cooperative membership is prohibited. Due to the heavy burden of holding taxes, about two properties owned by multiple homeowners who had been holding out until the last minute were sold at considerably lower prices than usual. Since the application for land transaction permits is not difficult, I believe they immediately prepared and submitted the applications on the 9th."

Real estate agencies in the northern part of Seoul also saw sporadic distressed property sales or inquiries focused on buyers looking for distressed properties until May 9th.

A licensed real estate agent in Ahyeon-dong, Mapo-gu, commented, "It seems like about two to three distressed properties were sold this month. Due to the advance notice of the heavy capital gains tax for multiple homeowners, many sellers had already sold their properties since March. Although there were inquiries on the 9th, it wasn't as chaotic as when the market was flooded with last-minute transactions during the 10.15 measures in October last year, when contracts were signed late into the weekend."

Meanwhile, Sanggye Boram Apartment, whose redevelopment zone designation and plan were approved on the 7th, received a surge of inquiries from buyers looking to purchase with existing leaseholds until the final day.

A licensed real estate agent in Sanggye-dong said, "Buyers who had been looking only for distressed properties, expecting prices to rise after the approval of the redevelopment plan, were calling to make immediate contracts on the 9th. On the other hand, sellers viewed the price increase as a positive factor and withdrew their properties from the market or increased their asking prices by 50 million won, making transactions difficult."

Another real estate agency head in Sanggye-dong shared, "When a new apartment unit of 84㎡ exceeded 1.2 billion won, someone who was hesitant to buy suddenly contacted us today expressing their intent to purchase. However, the transaction did not materialize because the seller was located out of town. Nevertheless, there were cases where multiple homeowners who held out until the end lowered their prices, so I believe quite a few land transaction permit applications were submitted by the 9th."

 On May 8th, one day before the end of the capital gains tax deferral measure for multiple homeowners, apartments are densely packed across the city as seen from Namsan in Seoul. According to relevant ministries, the deferral measure for multiple homeowners will end on May 9th, and additional taxes will be levied on capital gains from home sales by multiple homeowners starting on the 10th. [Yonhap News] 

◇ Seoul's Land Transaction Permit Applications Reached Nearly 1,000 Per Day... "Some Applications Filed a Month Later to Delay Final Payment"

According to the Saeol Electronic Civil Complaint Window, a total of 33,806 land transaction permits were filed in Seoul from January to May 7th this year. This figure includes not only apartments but also detached houses and villas within redevelopment areas that are subject to permits.

The number of land transaction permit applications increased in April compared to March.

In January, Seoul received a total of 7,171 land transaction permit applications. After President Lee Jae-myung officially announced the termination of the capital gains tax deferral on January 23rd, the number decreased to 5,174 in February, then increased to 8,673 in March and 10,208 in April.

In May, the number of applications on the 4th and 6th reached nearly 1,000, with 912 and 926 applications filed respectively.

By district, Nowon-gu, which has a high concentration of small and medium-sized apartment complexes, received the most land transaction permit applications, with a total of 4,030 filed from January to May 7th. This was followed by Gangseo-gu (2,206), Seongbuk-gu (2,131), and Songpa-gu (2,074).

Local real estate agencies believe that the government's decision to apply the capital gains tax deferral to contracts made by May 9th led to a surge in transactions in March, and the expansion of the deferral to land transaction permit applications filed by May 9th has allowed for steady transactions.

However, local real estate agencies explained that many parties hurried to make transaction agreements but delayed the submission of land transaction permit applications as much as possible.

A licensed real estate agent in Songpa-gu stated, "In cases with existing tenants, the buyer does not need to move in within the lease term. However, the final payment must be completed within 4 months in Gangnam 3 districts and Yongsan-gu, and within 6 months in other areas, after the land transaction permit is granted. Thus, there were many adjustments, such as buyers delaying their land transaction permit applications as much as possible depending on their financial situation."

 'Distressed Sale' listings are posted at a real estate agency in Songpa-gu, Seoul. [Yonhap News Archive Photo]

◇ "Those Who Wanted to Sell Have Sold" - Seoul Apartment Listings Plummet... Concerns Over Rental Market Instability

With the bulk of sales by multiple homeowners to avoid heavy capital gains tax effectively concluded, apartment listings in Seoul have sharply declined.

According to Asil, a real estate big data company, as of the 10th, apartment listings in Seoul decreased to a total of 66,914. This is a decrease of 13,166 units (approximately 15%) compared to the peak of 80,080 listings on March 21st this year.

Conversely, the number of apartments for rent in Seoul, which had been decreasing due to the impact of the real occupancy requirement in designated land transaction zones, turned to an increasing trend again after the end of April, recording 31,574 units as of the 10th.

The market anticipates that transactions will remain sluggish for the time being.

A licensed real estate agent in Gireum-dong, Seongbuk-gu, Seoul, commented, "During the capital gains tax deferral period, those multiple homeowners who wished to sell have done so. Those with minimal holding tax burdens will likely hold on to their properties. While essential transactions will still occur, both sellers and buyers are likely to remain on the sidelines and wait to see the government's tax reform plans in the second half of the year before making any moves."

In reality, the market believes that if the government, after the local elections, brings up issues such as reducing the long-term holding special deduction for holding and capital gains taxes, including for non-resident single homeowners, listings could increase again.

Concerns are also growing over the rental market.

In the northern areas of Seoul, where many apartments with low rental prices are concentrated, rental properties have been in short supply and prices have been exceptionally high, even during the seasonal off-peak months of April and May.

This contrasts with the areas of Gangnam and the Han River Belt in Seoul, where high rental prices are observed, and the rental market is experiencing a slowdown due to the seasonal off-peak period.

In the smaller apartment complexes of Junggye Green Apartment and Junggye Mujigae Apartment in Junggye-dong, Nowon-gu, each complex comprises a large number of units (3,481 and 2,438 households respectively), yet there are only one or two rental units available.

A licensed real estate agent in Junggye-dong, Nowon-gu, stated, "Recently, it has become difficult to secure rental loans. While high-priced rentals in Gangnam are subject to seasonal fluctuations, the shortage of rental properties in northern Seoul, where rental deposits are in the 200-300 million won range, continues. Some tenants who cannot find rentals are even considering purchasing a home, even if it means overextending themselves."

Kim Gyu-jeong, a real estate expert at Korea Investment & Securities, commented, "With the extensive designation of land transaction zones and the implementation of the lease renewal request right, the structural shortage of new rental properties is inevitable. Furthermore, coupled with the increase in holding taxes, a rise in rental prices is unavoidable."