Goodbye, freedom of residence!

Lee Sang-ryeol

The author is a senior editorial writer at the JoongAng Ilbo. 

These days, a popular saying is making the rounds in Korea: “If you keep your home, there’s the Comprehensive Real Estate Holding Tax; if you sell it, there’s the capital gains tax; if you give it away, there’s the gift tax; if you die, there’s the inheritance tax.”

It is hardly an exaggeration. Korea’s inheritance and gift taxes are among the highest in the world, with a top marginal rate of 50 percent. Under the latest tax reform package, taxes on high-value, nonowner-occupied single-home owners will increase, making both the Comprehensive Real Estate Holding Tax and the capital gains tax significantly more burdensome.

Nor does this appear likely to improve conditions for renters. To avoid punitive tax bills, owners of single homes who do not reside in them will have little choice but to move into their properties. The supply of rental housing will shrink further, pushing up both jeonse (lump-sum deposits) and monthly rents. The same pattern emerged during the Moon Jae-in administration, when the enactment of the three lease laws prompted many landlords to reclaim leased homes for owner occupancy, triggering severe disruptions in the rental market.

This year’s tax reform draws an excessive distinction between owner occupancy and nonowner occupancy. For both the capital gains tax and the Comprehensive Real Estate Holding Tax, tax deductions for nonowner-occupied homes will be eliminated. Although the government says “nonresidence due to unavoidable circumstances” will still be treated as owner occupancy, it applies only to moves between different municipalities, not within the same city. This significantly restricts freedom of residence.

Even for owners of a single home, the Comprehensive Real Estate Holding Tax becomes punitive. The top tax rate will nearly double, from 2.7 percent to 5 percent. For an apartment worth approximately 4.6 billion won ($3.23 million), with a taxable base of 1.2 billion won, the effective rate rises from 1.3 percent to 2 percent. Over twenty years, the tax would amount to roughly 40 percent of the property’s taxable value. This is separate from the property tax. At that point, the state is effectively confiscating private property through taxation over time.

The long-term holding special deduction will also be fundamentally restructured. The deduction for long-term ownership will disappear, leaving only the benefit for owner occupancy. A deduction cap will also be introduced: 2 billion won from 2028, falling to 1 billion won from 2029.

Such a policy, however, presupposes stable housing prices. Homeowners naturally expect that after selling a house and paying the capital gains tax, they can still purchase another home of comparable size and location. If paying the tax leaves them unable to do so, many will simply choose not to move. The new cap risks discouraging mobility and reducing market efficiency.

For older homeowners with little or no earned income, selling an expensive home in the Seoul metropolitan area and moving to a less expensive region may be the only realistic option. Yet spending one’s later years in an unfamiliar place after decades in the same community is far from easy. Critics have dubbed the proposal a “Goryeojang tax law revision” — a reference to the legendary practice of abandoning older parents in remote places.

Underlying the tax reform is the Lee Jae Myung administration's belief that taxes on real estate capital gains have become unfairly low compared to taxes on earned income. Yet the earned income tax applies to one year’s income, whereas the capital gains tax is imposed all at once on wealth accumulated over decades. The comparison is misleading, but the reform moves toward increasingly punitive taxation of high-value homes. This is precisely the kind of populism that pits one group of citizens against another.

In truth, soaring housing prices resulted from housing policies that suppressed demand while neglecting supply. The government has now made it more difficult both to live in one's home and to sell it. Following the expansion of the land transaction permit system across Seoul and parts of Gyeonggi, heavier taxation of nonowner-occupied single-home owners marks another restriction on freedom of residence. Taxes and regulations must remain acceptable to the public. Once governments cross that line, public support erodes, and political power inevitably begins its decline. History has offered no exceptions.