Property tax overhaul sparks fears of fewer rentals, higher rents

Property listings are posted at a real estate agency in Seoul’s Seocho District, Monday. Yonhap

“If my property tax bill amounts to 50 million won ($35,300) a year, how much rent should I be charging?”

That was the question posed by a homeowner in Korea on a real estate forum following the government’s latest tax overhaul proposal unveiled on Aug. 3.

The writer said he owns a single apartment in Seoul’s affluent Seocho District worth around 5 billion won. Under the proposed changes, he estimated that he would have to pay up to 50 million won a year in property holding taxes if he rented it out.

“This means 4 million won a month goes straight to the government, and anything above that is what I’d get to keep. Is it really possible for the landlord to shoulder the entire burden of this tax without passing it on to the tenant?”

The post captures a growing concern since the Aug. 3 announcement: higher taxes on owners of multiple homes and proprietors of non-owner-occupied properties could ultimately be deflected to tenants as landlords seek to recoup some of the additional cost.

There are already signs of such a shift in parts of southern Seoul. At Acro River Park in Seocho District, a 150-square-meter apartment was recently listed in the government’s transaction database with a 1 billion won deposit and monthly rent of 8.8 million won, up from an 800 million won deposit and 7.2 million won monthly rent.

The government says the tax overhaul is intended to put more homes in the hands of “genuine prospective buyers.” But higher rents could have the opposite effect for some would-be homeowners, leaving them with less money as more of their income is eaten up by housing costs.

High-rise buildings surround the vacant land where the Yongsan International Business District is planned in central Seoul, Monday. Yonhap

Lee Eun-hyung, a research fellow at the Korea Research Institute for Construction Policy, said monthly rentals were particularly vulnerable to such tax shifts.

“Monthly rentals are becoming increasingly common in Korea, so there is a good chance landlords will try to shift some of the additional tax burden to tenants. How much they can pass on will depend on demand at the time.”

The effect could also extend to “jeonse,” Korea’s unique rental system in which tenants pay a large lump-sum deposit instead of monthly rent.

“Since the (2017-22) Moon Jae-in administration, regulations targeting owners of multiple homes have continued to tighten. Now, in many apartment complexes across the Seoul metropolitan area, you can find dozens of homes for sale but barely one jeonse listing.”

That imbalance could give landlords more room to raise deposits, he said. “If there are few jeonse homes available but people still want to rent, there is nothing to stop deposits from rising.”

The researcher attributed the broader trend to a shrinking pool of rental properties, arguing that policies aimed at curbing speculative ownership could end up reducing the supply of homes available to renters.

“If you treat a home as speculative simply because the owner doesn’t live in it, you end up discouraging owners from renting those properties out,” he said.

Some landlords facing a substantially higher tax bill may decide that renting is no longer worthwhile, opting instead to sell the property or move in themselves. Either choice would take a home out of the rental market, further tightening supply in regions where housing demand remains strong.

There are already signs that some owners may be moving to sell. The number of apartment listings in Seoul rose to 62,516 as of Sunday, up 2,107 from Aug. 3, according to real estate data provider Asil. The increase was particularly pronounced in the affluent Gangnam area.