South Korea’s government has set the broad framework for real estate tax reform around “residency” and “strengthening holding taxes,” moving to drastically reduce preferential treatment for so-called “trophy homes”—properties that receive massive tax benefits simply through long-term holding without actual residency. The plan is to redesign the capital gains tax and Comprehensive Real Estate Holding Tax systems to increase the holding tax burden on ultra-luxury homes while giving greater preference to actual residents.
With President Lee Jae-myung personally disclosing six key issues in real estate taxation via social media on the 10th, the government plans to release a final reform package at the end of this month following a series of debates running from the 14th to the 23rd. Kim Yong-beom, Blue House Policy Chief, stated in a briefing on the 10th that authorities are “reviewing reasonable improvement measures across the entire tax system, including holding and transaction taxes, based on research services and overseas case studies,” and are running repeated simulations.
The core issues can be condensed into three main points: first, strengthening holding taxes on ultra-luxury homes; second, reducing tax benefits for non-resident and multi-homeowners; and third, rebalancing holding taxes and transaction taxes. Market attention is particularly focused on the sweeping overhaul of the Long-Term Holding Special Deduction, which has fueled a preference for “trophy homes.”
The Ministry of Economy and Finance recently received an interim report on a research service titled “Tax Rationalization Measures for Housing Market Normalization” and has begun redesigning the system to reduce Long-Term Holding Special Deduction benefits for non-resident single-homeowners and ultra-luxury properties. Currently, a single-homeowner holding a property for more than three years can deduct 12% to 40% of capital gains regardless of actual residency. Combined with an additional 8% to 40% deduction for residing in the property for more than two years, the total deduction can reach up to 80%.
The problem is that the more expensive the home and the longer the holding period, the more geometrically the deduction benefits grow. Authorities view this structure as fueling speculative demand and making it harder for genuine end-users to purchase homes. Accordingly, discussions are underway to drastically lower or even abolish the holding-period deduction rate, and potentially transition to a “Long-Term Residency Income Deduction” that applies the maximum 80% deduction solely based on residency period. However, considering the market shock from abrupt system changes, the plan is to design the deduction reduction precisely, focusing on ultra-luxury homes rather than mid-to-low-priced housing.
In the Comprehensive Real Estate Holding Tax segment, stronger taxation on ultra-luxury homes is highly likely. Currently, single-homeowners are exempt from the holding tax if the assessed value is below 1.2 billion won (approximately $800,000), but with ultra-luxury apartments increasingly appearing—such as a 273㎡ unit at “Nine One Hannam” in Seoul’s Hannam-dong recently trading for 25 billion won (approximately $16.7 million)—discussion around the taxation threshold is active. Various thresholds such as 2 billion won (approximately $1.3 million), 3 billion won (approximately $2.0 million), and 4 billion won (approximately $2.7 million) are being mentioned in the market, with a plan to subdivide the holding tax base brackets and strengthen progressive taxation on ultra-luxury segments being seriously considered.
International comparison figures are presented as the basis for raising holding taxes. South Korea’s effective holding tax rate is 0.15%, less than half the OECD average of 0.33%. The gap widens further when compared to New York in the U.S. (1%) or Tokyo in Japan (1.7%). The ratio of holding tax burden to private real estate value in South Korea is also low at 0.21% (as of 2022), compared to the UK (0.64%), Japan (0.49%), and France (0.34%). In its “2026 Economic Survey of Korea,” the OECD recommended increasing the share of holding taxes, analyzing that it would “support residential mobility, enhance labor market efficiency, and ease frictions in the housing market.”
The Fair Market Value Ratio increase is cited as the primary tool to actually raise holding taxes. This ratio, which determines the tax base for the Comprehensive Real Estate Holding Tax and property tax, rose to 95% in 2021 before being lowered to 60% under the previous administration. The government is reviewing a plan to gradually raise it to 80-100% starting next year, with upward adjustments to the assessed value realization rate and tax base bracket adjustments also expected to be discussed.
Rebalancing holding taxes and transaction taxes is also a key task. Currently, transaction taxes account for 50.4% of South Korea’s real estate tax revenue, more than double the OECD average of 23.3%. In contrast, holding taxes account for only 29.4%, far below the OECD average of 56.5%. According to the Korea Institute of Local Finance, South Korea’s housing transaction turnover rate is 5.5%, much higher than the UK (3.6%), the U.S. (4.5%), and Japan (0.6%), exacerbating the transaction tax bias.
When a single-homeowner in an adjustment-target area like Seoul purchases an additional home with a market price of 2 billion won and an assessed value of 1.5 billion won (approximately $1.0 million), the transaction tax amounts to 168 million won, while the annual holding tax is a mere 6.09 million won (approximately $4,064). The transaction tax is equivalent to 28 years of holding taxes. Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol emphasized the balance between holding and transaction taxes in a recent radio interview, stating that the government views housing under the principle that “a home is for living, not buying,” aiming to establish a housing market centered on actual residents.
While strengthening holding taxes, the government is also reviewing plans to phase in the application timing of factors affecting tax amounts, thereby encouraging the sale of non-resident and speculative properties during the transition. A structure where capital gains tax burdens gradually increase, making it more advantageous to sell non-resident properties sooner, is also being discussed. Conversely, authorities explained they are analyzing various scenarios to ensure that the tax burden on low- and middle-income earners who have struggled to purchase their own homes does not increase as much as possible.
The government plans to hold a supply debate hosted by the Ministry of Land, Infrastructure and Transport on the 14th, a finance debate by the Financial Services Commission on the 15th, and a tax debate by the Ministry of Economy and Finance on the 16th, followed by a grand debate presided over by President Lee Jae-myung on the 23rd to synthesize opinions and announce the final reform package at the end of this month. As the use of holding tax revenue has also emerged as an official issue for the first time, further discussion is expected to be needed given the current structure where the national-level Comprehensive Real Estate Holding Tax and local-level property tax are mixed, intertwined with distribution issues among local governments.