Homeowners' return to properties may squeeze Seoul renters

South Korea's proposed tax reforms, aimed at increasing the tax burden on non-resident homeowners, are raising concerns about potential instability in the 전월세 (jeonse and monthly rent) market. The changes could incentivize property owners to occupy their homes rather than rent them out, leading to a significant reduction in available rental units.

Real estate agents in affluent areas like Gangnam and along the Han River have reported a surge in inquiries from homeowners considering selling or occupying their properties. Those facing increased holding taxes, especially those with shorter ownership periods, are reportedly leaning towards moving into their properties. This trend is particularly pronounced among owners of high-value homes priced above 3 billion won.

If more non-resident homeowners decide to occupy their properties, tenants in those homes will be forced to vacate upon lease expiration. They will then need to find new rental accommodations in the surrounding areas, potentially driving up rental prices in those neighborhoods. The government argues that the vacated homes will be supplied as new rentals, maintaining overall market balance. They also suggest that the impact on the high-end rental market will be limited due to the financial capacity of its typical clientele.

However, industry experts predict a domino effect. If high-end renters are displaced, they may move to lower-priced segments, causing ripple effects and price increases throughout the market. The concern is amplified by the potential for owners of properties valued between 1.2 billion and 2.9 billion won to also opt for self-occupancy to benefit from tax advantages, including a special deduction for long-term residents.

This situation is particularly worrying given the projected record low of 13,019 new apartment completions in Seoul next year. A convergence of homeowners occupying their properties and a shrinking supply of rentals could exert significant upward pressure on the rental market. Experts caution that a concentrated move towards self-occupancy before 2029, when the tax difference between non-resident and resident homeowners widens significantly, could lead to considerable rental market volatility.