Apartment swaps hit 3-year high as tax burden looms

"We've been getting quite a few inquiries lately from customers in high-end neighborhoods like Apgujeong and Cheongdam asking whether they can swap homes with their children who live in Banpo, Gangdong or Mapo," said a real estate expert who asked to be identified only as A.

Apartment swap transactions hit a three-year high nationwide in the first half of this year, driven by growing demand from owners looking to lock in capital gains ahead of tightening tax rules — including the revival of the heavy capital gains tax surcharge on multi-home owners. Experts say the trend is set to accelerate further, particularly in parent-child swaps where negotiating terms is easier than with strangers and where families are looking to redistribute assets with inheritance and gift taxes in mind.

According to the Korea Real Estate Board, a total of 305 apartment swap transactions were recorded across the country from January through June — the highest figure in three years since the all-time high of 394 deals in the first half of 2023.

In Seoul, 57 apartment swaps were recorded, roughly on par with the previous record of 59 set in the first half of last year but up 39 percent from 41 deals in the same period of 2024. Analysts say the surge reflects preemptive tax-saving moves in response to the government's tightening stance on property taxes that has continued since the start of the year. The data, however, does not yet reflect the tax reform package announced Aug. 3.

In a swap transaction, the parties exchange apartments and each pays capital gains tax and acquisition tax just as they would in a conventional sale. The key advantage is that the sale and purchase happen simultaneously — contract signing, final payment and title transfer can all be handled in one go, saving time. Because the two sides simply hand over their homes and settle only the difference in value, the cash burden is also lighter than in a standard transaction.

Experts say interest in swap deals will grow further in the wake of the latest tax reform. Long-term holders who bought at low prices and have accumulated large unrealized gains stand to face the steepest increases in their tax burden.

The reform package includes a plan to gradually replace the long-term holding special deduction on capital gains tax with a long-term residency income deduction starting next year. It also caps the capital gains deduction for single-home households at 2 billion won ($1.41 million) in 2028 and 1 billion won in 2029, setting a ceiling on the deductible amount. Owners of ultra-high-priced homes with large unrealized gains will inevitably face a sharp rise in their capital gains tax liability.

A simulation by Woo Byung-tak, a senior specialist and tax accountant at Shinhan Bank's Premier Pathfinder unit, found that an owner who bought an 84-square-meter unit at Raemian Firstiage in Seocho-gu for 1.6 billion won, lived there for 10 years and then sold it for 5.6 billion won would see their capital gains tax bill jump from 241.85 million won this year to 449.85 million won in 2028. By 2029, the liability would climb further to 945 million won.

Baek Jong-won, a tax accountant at Wise Tax, said swap deals offer an attractive tax-saving option for long-term holders of ultra-high-priced reconstruction-zone apartments in areas such as Apgujeong and Banpo, since a swap allows them to realize and settle capital gains while resetting their acquisition cost to a higher base. He cautioned, however, that because prices vary by building, unit and floor, a swap could be viewed as a below-market purchase or above-market sale, potentially triggering additional gift or capital gains tax assessments. "Writing the same amount for both properties in the contract can be risky," he said.

For these reasons, experts expect to see more swap deals between parents living in high-priced homes and their children in nearby properties. While third-party swaps require both sides to find a match on property preference and price at the same time, family members can negotiate terms far more easily.

If a parent owns a more expensive home than their child, a swap — even after accounting for capital gains tax and some gift tax — can serve as a way to redistribute assets in advance with future inheritance in mind.

"Finding a counterparty for a swap with a stranger is tricky, so actual deals are much harder to close than the volume of inquiries would suggest," Woo said. "But when parents and children swap homes, the family as a whole can hold on to all of its prime properties."