Gangnam prices keep soaring as gov't squabbles over real estate tax

Korea's real estate market remains polarized, with Gangnam's housing prices soaring while the rest remain stagnant. Legislators are considering easing regulations on real estate taxes as a consequence.

The Raemian One Bailey Apartment Complex in Seocho District, southern Seoul [YONHAP]

Korea's real estate market remains sluggish across the country — with the exception of Gangnam, a posh neighborhood in southern Seoul.

Such a trend is a testament to the intensifying polarization in the country's real estate market, with Gangnam's housing prices soaring while the rest remain stagnant, weighed down by high interest rates. The chasm is expected to grow even larger, with legislators floating the possibility of easing regulations on real estate taxes for single-property owners, nudging buyers to flock to that “one perfect house.”

On Sunday, an apartment measuring 59 square meters (635 square feet) in net leasable area (NLA) on the 26th floor of the Raemian One Baily Apartments complex in Seocho District, southern Seoul, sold for 3.06 billion won ($2.22 million), according to the Ministry of Land, Infrastructure and Transport’s transaction price data.

One pyeong, or 3.3 square meters, of the apartment unit was priced at 127.5 million won — the highest selling price recorded for a home of that size. The price has gone up 200 million won in the nine months since last August when tenants first started to move, during which a house on the 22nd floor sold for 2.84 billion won.

The New Hyundai Apartment Complex 12, located in Gangnam District, southern Seoul, is scheduled for redevelopment. [NEWS1]

Meanwhile, a 121-square-meter apartment scheduled for redevelopment in Gangnam District, southern Seoul, also reached record-high prices. The price of a home on the 11th floor changed hands for 4.77 billion won on April 17, up 1.62 billion won from when it had last sold in November 2020 — also, at that time, its highest-ever price. A home on the sixth floor sold for 4.8 billion won on June 1.

Meanwhile, a unit with 84 square meters of NLA on the 33rd floor at an apartment complex in Daechi-dong, Gangnam District, sold for 3.435 billion won on May 30, surpassing the 3.3 billion won home on the 25th floor sold on April 9. A 114-square-meter home on the 17th floor also reached an all-time high, selling for 4.87 billion won.

Most of the major apartment complexes in the Gangnam and Seocho Districts have bounced back to the prices recorded during late 2021 and early 2022, when housing rates were at their highest.

On average, an apartment in Gangnam District cost 2.58 billion won as of May 17, according to real estate market tracker Real Estate 114. The price amounts to 99 percent of the all-time high average of 2.61 billion won for Gangnam District homes recorded in 2021.

Seocho District housing prices have recovered 98 percent of their record-high average price, with this year’s average recording 2.77 billion won compared to the 2.83 billion won recorded in 2022.

On the other hand, Nowon, Gangbuk, Gwanak and Dobong Districts in northern Seoul have seen relatively slow recovery rates, at 87 percent, 87 percent, 86 percent and 85 percent, respectively.

The housing transaction price index has also risen rapidly. Housing prices in the Seocho, Yongsan and Gangnam Districts rose by 0.14. percent, 0.13 and 0.12 percent in a week, higher than the Seoul average of 0.09 percent, according to the Korea Real Estate Board's weekly survey data on June 3. This is mainly due to the rise in jeonse (large lump-sum deposit) prices, expectations of rate cuts and real estate tax relief increasing demand for housing in the Gangnam area.

It is under these circumstances that political circles are floating the possibility of abolishing the comprehensive real estate holding tax.

The comprehensive real estate holding tax is a property tax levied on people who possess large amounts of real estate, which was introduced in 2005 to tame the overheated housing market.

Minister of Land, Infrastructure and Transport Park Sang-woo at a news briefing in May [YONHAP]

Discussions began last month after the liberal Democratic Party suggested the abolition of comprehensive real estate taxes levied on single-property owners. Land and Infrastructure Minister Park Sang-woo argued for the abolition of housing initiatives including the comprehensive real estate holding tax, the rebuilding excess profit restitution system and the housing lease protection act that capped rent prices and protected a tenant’s right to renew a previous lease contract, during his appearance on KBS talk show “Sunday Diagnosis” (1999-).

“The comprehensive real estate holding tax is a form of punitive taxation to prevent excessive gains in real estate profits, so it does not conform to the principle of taxation,” the minister said.

The government is also considering drawing up a tax revision bill next month that includes an amendment to the comprehensive real estate tax.

However, some are concerned that abolishing the comprehensive real estate tax will only fuel polarization in the housing market, driving buyers toward the “one perfect home,” as shown in the case of Gangnam.

The one perfect home is a term coined to describe the phenomenon of buyers prioritizing the purchase of one house that has high value and a better rate for flipping rather than owning multiple houses that would not be profitable due to heavy transfer taxes.

The slump in the real estate market outside of Seoul and the surrounding metropolitan area is dragging on with tens of thousands of houses still unsold. Abolishing the comprehensive real estate tax, some argue, might only increase the prices of expensive homes in Gangnam.

“Not only could it further widen the [gap in real estate] prices between Seoul and other regions, it could also lead to price polarization within Seoul depending on location,” said Seo Jin-hyung, a real estate law professor at Kwangwoon University and president of the Korea Real Estate Management Academy.

[YOO YOUNG-RAE]

Seoul's house price polarization index, in fact, is at its highest level in six years. The quintile ratio — calculated by dividing Seoul housing prices in the top 20 percent by those in the bottom 20 percent, which reached 2.48 billion won and 493.38 million won, respectively — was 5.03 in May, its second highest after the 5.08 recorded in April 2018, according to KB Land’s report on monthly housing price trends. A higher quintile ratio indicates a more polarized housing market.

Meanwhile, some suggest that the recent hike in Gangnam housing prices is not likely to lead to a rise in the real estate market in general.

Construction for the Korea Land & Housing Corporation's third New Town is underway at Gyeyang District, Incheon. Photo taken on March 29. [YONHAP]

“The outlook for the economy is uncertain,” Minister Park said on his talk show appearance. “Housing prices are high due to rising construction costs, and more housing supply from the third New Town plan will be added from the latter half of next year; this makes it difficult for housing price trends to shift upward.”

Experts argue that an amendment to the comprehensive real estate tax will have a limited impact on the real estate market.

“It is more likely that the comprehensive real estate tax will be amended or improved upon, rather than being outright abolished,” said Lee Eun-hyung, a researcher at the Korea Research Institute for Construction Policy. “It is hard to expect that housing transactions will be revitalized just by simply changing the standard amount [of tax] levied,” Lee added.

BY KIM WON, KIM JU-YEON [kim.juyeon2@joongang.co.kr]