Real-estate tax reform announced; expert says it reflects an owner-occupancy philosophy but warns of rental-market instability

She explained that the government is maintaining a policy direction centered on owner-occupiers and that this philosophy is unlikely to change easily, noting that this has caused policy conflicts.

Kim viewed this policy direction as ultimately reflecting an intent to restructure the real-estate market around owner-occupancy. It is interpreted as an attempt to strengthen benefits for homes people actually live in, rather than multiple-home ownership for investment. She forecast that the government's firm owner-occupancy philosophy will be a key variable for the market going forward.

However, Kim pointed out that this firm philosophy reduces the flexibility of policy change. She warned that the government's rigid stance can sometimes clash with the practical needs of the market and produce unintended side effects.

Kim Hyo-seon said that when she counseled residents of very high-priced homes at a bank's wealth management unit, there were almost no inquiries about selling. She said most owners of very high-priced homes are choosing to 'hold on' and not sell despite the tax burden. They tend to regard the home as their core asset and, since they own it to live in, they show little inclination to consider disposing of it.

Kim analyzed that this pattern could deepen the locking-up of supply in the very high-priced home market despite the government's tax changes. Many wealthy owners already hold their homes without loans based on ample financial resources, so they do not appear to feel strong pressure to sell even with higher taxes. This suggests the very high-priced home market may behave differently from other housing markets.

This 'holding on' strategy could make it harder for the government to achieve the increase in listings it intended. Especially for very high-priced homes, if supply does not come to market, transactions may shrink further, which could affect liquidity across the entire market. It shows that the government's policy could produce results contrary to its intent for some groups.

Existing tenants could be forced to move out involuntarily within the same two-year window, so demand for new rental units is expected to surge two years from now. She cited similar patterns during the earlier relaxation of the capital gains tax grace period and expressed concern about the rental market two years out.

She especially stressed that supply will be even tighter two years from now, given that move-in volume drops sharply starting next year rather than this year. Considering the sluggish current construction starts, she explained that almost no new apartments will be available in two years, and if older apartments also shift to owner-occupation or sale, the rentable supply will shrink sharply. She expects this shortage to concentrate rental demand and put heavy pressure on the jeonse market.

She also pointed to the reality that residents of high-demand areas find it hard to move far away because of children's schools or workplaces. Alternative housing also has to be found within similar areas, where apartment supply is limited, so the shortage of jeonse units will inevitably deepen. She forecast that this could drive jeonse prices sharply higher and lead to a jeonse crisis.

Kim added that this jeonse-market instability will seriously threaten housing stability for non-homeowners. A decline in new rental units and rising jeonse prices will increase the housing-cost burden on non-homeowner households and deepen constraints on moving.

Her analysis is that the very high-priced home market has already become a 'world of their own' where deals are made without loans, so tax changes will not have a major effect on buying sentiment.

Kim stressed that very high-priced homes in top locations have the potential to become absolute winners in redevelopment. Because of this, she said, the top 0.1% of wealthy owners will keep buying even while accepting the tax burden. She stated her view that although prime high-priced homes may see short-term adjustments, they will maintain their value over the long term.

Kim Hyo-seon argued that regulations on redevelopment projects should be eased. Many people currently own homes subject to redevelopment while living elsewhere, and the current policy forces them to move back into those homes, causing inconvenience. She pointed out that this undermines family housing stability and creates an inefficient situation.

She also noted that tenants in redevelopment areas, who have been living affordably, face sudden eviction. Owners find it hard to sell and tenants find it hard to stay, so inefficiency is growing. Kim proposed supplementary measures to solve this, such as allowing owners to sell, or recognizing tenants' residence periods without rent increases even when they are not living there themselves.

Kim emphasized that only with such supplementary measures can redevelopment projects proceed smoothly and reduce inconvenience for stakeholders. She particularly argued that forward-looking deregulation of redevelopment is essential to minimize the side effects of owner-occupancy-centered policy and secure market flexibility.

Kim Hyo-seon named the jeonse market as the most important factor to consider in the housing market. In the past, rising jeonse prices tended to drive up sale prices, but she explained that because Seoul apartment jeonse ratios have fallen to the 40% range, the jeonse market now plays a more important role in defending against rising monthly rents than in directly supporting sale prices.

She analyzed that when Seoul apartment jeonse ratios were around 60–70%, rising jeonse prices had a large effect in lifting sale prices, but now that the ratio has fallen, this effect has weakened. Noting that local apartments have jeonse ratios of 70–80% yet prices are not rising, she interpreted jeonse as contributing to stabilizing the monthly-rent market rather than supporting sale prices.

Kim argued that the existence of the jeonse system has kept monthly rents from rising excessively. She voiced concern that if jeonse disappears or shrinks, tenants could all shift to monthly rent and push rents up sharply. She therefore stressed that the stability of the jeonse market is essential to maintaining the health of the overall rental market.

Her position is that even good policy struggles to produce its intended effect if it does not fit market conditions and timing.

Kim diagnosed that signs of a shortage of new housing supply are clear, and there is no obvious remedy at hand. She warned that if strong owner-occupancy measures such as tighter rules on multiple-home owners and owner-occupancy obligations are imposed during such a supply shortage, they could actually encourage listing declines and deepen instability in the rental market.

Kim therefore stressed that timely application matters as much as policy direction. She argued that during a supply shortage like the current one, policy flexibility is needed to secure market liquidity and promote housing stability for tenants.

Given that the new policies are already reducing listings of older apartments, she said it cannot be denied that tenants in the monthly-rent market are the group most in need of protection.

Kim expressed expectation that the government will strengthen tenant protection through tailored policy aimed at the concerns now being raised. The expectation is that as listing declines push monthly rents higher, the government will prepare concrete measures to ease tenants' housing-cost burden.

This is seen as a move by the government to offset the side effects of the strong owner-occupancy-centered policy and secure housing stability for non-homeowners and tenants. Attention is focused on how upcoming policies will affect stability in the monthly-rent market.

She explained that while interest rates affect DSR (debt service ratio) and borrowing capacity, this remains a range where people can still 'debate whether to buy.'

By contrast, she stressed that lending restrictions act as a much stronger constraint because they strip away the very eligibility to buy a home. In other words, weighing rate changes while loans are still possible is fundamentally different from being barred from buying altogether because no loan is available. She stated her view that because the effect of lending restrictions is currently overwhelming, the impact of rate changes on the market will be relatively small.

Kim Hyo-seon forecast that if the current policy direction continues, non-homeowners will face a very difficult period. She noted that many people around her say it is hard to find a replacement residence after a lease expires, as rental units are becoming scarce.

She warned in particular that the jeonse-to-monthly conversion rate does not move only in line with base-rate increases, and that when part of a jeonse deposit is converted into monthly rent, the monthly amount rises far more, so non-homeowners' housing-cost burden will grow sharply. This means instability in the rental market could translate into a real increase in housing spending for non-homeowner households.

Her explanation is that the factors determining home prices are location and product quality, and very high-priced apartments often satisfy both.

She analyzed that holding taxes such as the comprehensive real estate tax (jongbu-se) may reshape owners, but this will ultimately concentrate ownership among wealthy owners who can afford it. She forecast that while the jongbu-se issue is highlighted now, a time will come when the market absorbs it to some degree and it fades from attention.

She explained that a strong desire for housing among Koreans is the main motive for buying.

She also observed that new demand keeps flowing in, such as wealthy households relocating from regional areas to Seoul, so the market is not moved only by existing demand. This suggests tax policy may have only limited influence on buying sentiment. She stated her view that the essential value of housing combined with the demand of moving wealthy households will support the market.

Kim Hyo-seon voiced concern over the sharp price rises in Yongsan redevelopment areas where no zone designation has yet been made. She pointed out that prices have risen a lot because of redevelopment issues, while actual project feasibility has not changed much. She said fractional subdivision of ownership is happening excessively and is a problem.

Some people even recommend buying properties not yet built on the ground, but Kim warned that for ordinary people who do not know the exact stage, such properties could become subject to cash settlement. In other words, if redevelopment progress is uncertain or project feasibility is weak, investment capital could be locked up or lead to losses. She advised that investors should carefully review each area's redevelopment stage and legal risks.

She forecast that if current conditions persist, aging apartments in outer areas will become hard to redevelop and gradually decline. This could worsen the qualitative decline of the living environment and deepen imbalances between regions. She therefore argued that unless the government actively provides incentives to revitalize redevelopment in outer areas, housing-environment problems across the city could become severe.

Kim stressed that such incentives should go beyond financial support and include deregulation and various measures to improve project feasibility. Only then, she argued, can redevelopment projects in outer areas be revitalized, balanced development promoted, and the living environment improved.

She believes housing demand in these areas will keep growing.

She explained that because home prices in these areas are still relatively reasonable, it is advantageous for non-homeowners to buy homes within their affordable range. She especially emphasized that these areas are expected to keep attracting population along with industrial development, so there is ample room for housing values to rise over the long term.

Kim added that non-homeowners in these areas can seize the chance to build assets and also secure housing stability by buying a home.

Because feasibility is hard to raise with current methods, she said various approaches must be explored.

For example, she proposed flexible alternatives such as letting residents select interior contractors and choose finishing materials to suit their circumstances, or changing the approach to community facilities that are said to cause many side effects. She judged that without such experiments, revitalization of reconstruction and redevelopment projects would be hard to expect.

She explained that people have learned from experience, so rather than prices rising simply on positive news as before, they now tend to weigh other factors in combination, such as actual convenience after opening.

She said that while GTX opening does improve transit convenience for residents of those areas, it does not necessarily become a major driver of home prices. However, she added that areas where other positive factors act together with GTX may still have room to rise. In other words, GTX is just one of several positive factors and, on its own, is unlikely to have the same impact as before.

This is interpreted as meaning the government is aware of the burden on the rental market from the current supply shortage and owner-occupancy-focused policy, and may consider further intervention if necessary.