South Korea's tax reform on homeownership sparks tenant displacement fears

South Korea's government is overhauling tax laws to incentivize homeowners to reside in their properties, a move that risks creating instability and uncertainty in the rental market. The proposed changes, part of the 2026 tax reform plan, aim to encourage actual residency over speculative property holding.

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If you only need to live there for one year, the homeowner can just kick out the tenant and move their resident registration. There is a risk of abuse if actual residency is not checked every time.

The Ministry of Economy and Finance plans to transform the long-term holding special deduction for capital gains tax into a "residence deduction." This new deduction would apply even during the construction period of redevelopment or reconstruction projects. Currently, properties under construction receive a holding deduction rate of 4% annually. The proposed compromise would allow half of the construction period to be recognized as a residence period, applying an 8% residence deduction rate for homes where the owner has resided for at least one year before the management disposition approval date.

However, housing activists and legal experts express concern that homeowners might evict tenants to meet the residency requirements. Choi Eun-young, director of the Korea Urban Research Institute, warned that if owners only need to live in the property for one year, they could simply ask tenants to leave, register their residency, and potentially exploit the system without genuine long-term occupancy. This could leave many tenants facing displacement.

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It can be seen as a policy that compromises with reality to some extent, but it is a measure that does not closely consider the correlation between the on-site situation and the system.

Landlords who previously benefited from "co-living rental" incentives are also facing difficulties. The exemption from the two-year residency requirement for co-living renters, which allowed them to receive tax benefits like a 1-household 1-residence exemption and long-term holding special deduction if they increased rent by no more than 5%, is being adjusted. These changes could lead to significant tax burdens for landlords who were expecting to maintain these benefits.

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In my case, the lease ends in June next year, meaning the deadline to sell is June 2028. However, because the holding and residency periods are short, the long-term holding special deduction is small, and the capital gains tax burden is high, so I am contemplating what to do.