Long-term holding tax break reform, right direction but difficult path

Suh Kyoung-ho The author is an editorial writer at the JoongAng Ilbo. President Lee Jae Myung's repeated remarks about scaling back the tax break for real estate capital gains have sent ripples through both politics and the housing market. The policy, commonly referred to as the long-term holding deduction, allows sellers of land, buildings and homes held for three years or longer to deduct between 6 and 30 percent of the applied tax. For households that own a single residence, the benefit is more generous. Depending on the holding period, 12 to 40 percent can be deducted, with an additional 8 to 40 percent reduction tied to years of actual residence. The president has taken aim at the holding-period portion of this benefit, questioning why substantial tax relief should be granted simply for owning a property over time when it is not used as a primary residence. His concern is not without empirical support. As of 2024, Korea's homeownership rate stood at 61.4 percent, while the owner-occupancy rate was slightly lower at 58.4 percent. In the capital region, the figures were 55.6 percent and 52.7 percent, respectively, indicating a persistent gap between ownership and residence. In other words, a portion of households own homes in which they do not live, treating them as investment assets rather than dwellings. This distinction has long been a defining feature of Korea's housing market, where real estate often functions as both shelter and a key vehicle for wealth accumulation. International comparisons further highlight the issue. In many member states of the Organisation for Economic Cooperation and Development, tax benefits or financial support are closely tied to actual occupancy. In Britain, capital gains tax relief increases in proportion to the duration of residence. In the United States, sellers must have lived in the property for at least two of the five years preceding the sale to qualify for tax exemptions. Canada, France and Norway similarly restrict such benefits to primary residences. Compared to these cases, Korea's system has been relatively lenient toward ownership without residency. Domestically, policies that have tightened regulations on owners of multiple homes while continuing to support single-home owners have contributed to what is often described as the "one premium home" phenomenon. Rather than holding multiple properties, investors concentrate their resources in a single high-value unit, typically in Seoul or other parts of the capital region. Because the long-term holding deduction increases with the size of capital gains, high-priced properties benefit disproportionately. According to recent estimates, out of roughly 627.1 billion won ($426 million) in total tax benefits granted through the deduction in 2024, about 85.5 percent accrued for homeowners in Seoul. This structure has raised concerns that even single-home ownership can serve as a vehicle for speculative behavior under current conditions. While it is natural for buyers to anticipate price appreciation when purchasing a home, there is little justification for public policy to support demand driven primarily by investment motives. Strengthening residency requirements could therefore help realign incentives, encouraging housing to function more as a place to live rather than as a financial asset. Such measures could also serve as a tool to curb speculative purchases by foreign buyers, who in some cases face fewer regulatory barriers and can effectively "shop" for housing without intending to reside in it. Despite the policy's emergence as a major political issue, with candidates in the Seoul mayoral race engaging in heated debate, the government has yet to present a clear and detailed plan. This hesitation reflects the inherent complexity of the issue. While reducing benefits for nonresident ownership appears directionally sound, distinguishing between genuine residential use and investment intent is far from straightforward. Many househo...