President Lee Jae-myung's recent statement that taxes are a "last resort" for cooling the housing market provides a clear roadmap for the government's near-term policy sequence.
This policy direction stems from a complex economic environment. First, the Bank of Korea (BOK) is hesitant to raise interest rates. With household debt at high levels, a rate hike could strain household finances and the broader economy. The BOK has held its base rate at 2.50%, which means it must rely on other tools to manage the market. This is where macroprudential policies, like tightening lending rules, come into play. The government's strategy is to use these financial levers first, alongside efforts to increase housing supply, to gently apply the brakes without causing a sudden stop.
Second, a significant tax policy change is already on the calendar. The temporary relief on the heavy Capital Gains Tax (CGT) for people who own multiple homes is set to expire on May 9, 2026. This is not a new, surprise tax but a return to the standard rules. By letting this deadline proceed, the government is using a targeted tax measure to encourage multi-home owners to sell, which could increase the housing supply. The president's comment signals that the government wants to see the effect of this scheduled change before considering broader, more powerful tax hikes.
Finally, the overall financial system's stability has improved. For instance, payouts related to Jeonse deposit guarantees have decreased significantly, suggesting that a major source of risk in the rental market is subsiding. Combined with a robust financial stabilization fund, authorities feel they have the breathing room to take a more measured approach rather than resorting to drastic tax measures immediately. The annual tax reform plan in July is now framed as a back-up option, a tool to be used only if the current strategy of 'finance and supply first' fails to cool the market's momentum.
- Macroprudential Policy: Financial regulations designed to reduce risks in the entire financial system, such as setting limits on how much people can borrow relative to their income (DSR) or a home's value (LTV).
- Capital Gains Tax (CGT): A tax on the profit made from selling an asset, such as real estate. In Korea, owners of multiple homes can face a higher, or surcharged, tax rate.
- Jeonse: A unique Korean rental system where a tenant pays a large lump-sum deposit instead of monthly rent. The deposit is returned at the end of the lease.