Multi-homeowner measures need both carrot and stick approach

The South Korean government ended the additional capital gains tax on owners of multiple homes on May 9, while introducing temporary relief for buyers who do not already own property. Those who signed purchase contracts with multi-homeowners by that date are allowed to postpone the residency requirement for up to two years. The measure temporarily permits so-called gap investment, in which a buyer purchases a home while an existing tenant remains under lease. The aim is to facilitate sales by multi-homeowners and help the market absorb available housing stock. In effect, the policy revives a four-year suspension of the surtax while attempting to limit unintended consequences, taking into account existing constraints such as the land transaction permit system.

Housing policy setbacks during the Moon Jae-in administration stemmed from a combination of low interest rates, tight housing supply and regulations that constrained both purchases and sales by multi-homeowners. The government sought to prompt sales by raising property holding taxes and imposing heavier capital gains taxes. As both retaining and selling homes became increasingly burdensome, many multi-homeowners opted to transfer properties to family members or held on only to high-value units in prime districts such as Seoul’s Gangnam. This approach became known as the “smart one house” strategy.

In 2020, the government enacted three major rental laws, including a tenant’s right to renew a lease and caps on rent increases, in an effort to protect renters. The changes triggered a short-term surge in rental deposits and created a feedback loop that drove housing prices higher. Former President Moon later admitted, “We failed when it came to real estate policy.” The episode demonstrated that a regulatory strategy focused primarily on punishment is unlikely to bring lasting market stability.

After abolishing the additional capital gains tax on multi-homeowners, the government also signaled plans to scale back tax incentives for registered rental properties. President Lee Jae-myung said that “an apartment supply of 42,500 units in Seoul is not insignificant,” indicating expectations that owners of multiple rental homes will begin putting properties up for sale. The broader goal is to systematically dismantle institutional arrangements that allow multi-homeowners to delay sales.

A greater supply of homes from multi-homeowners could help stabilize the market in the short term. This helps explain why successive administrations have sought both to regulate multi-homeowners and to encourage them to sell. Yet punitive, reactive measures risk producing unintended distortions. Establishing conditions that make voluntary sales more attractive before applying pressure is essential to limiting side effects. A calibrated mix of incentives and disincentives remains the cornerstone of effective housing policy.