South Korea Tightens Real Estate Controls in Hwaseong, Yongin, Guri

South Korea has designated specific areas in Hwaseong's Dongtan district, Yongin's Giheung district, and Guri city as 'triple-regulated zones,' combining adjustment target areas, speculative overheating zones, and land transaction permit zones. This move aims to cool down rapidly heating apartment markets in these regions.

Official data from the Korea Real Estate Board shows substantial price increases in these areas up to the fourth week of June. Dongtan recorded a cumulative price increase of 11.38%, Guri saw 7.87%, and Yongin's Giheung district experienced 6.21% growth. Despite these figures, some local real estate market participants feel the government's action is a step behind.

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The restrictions on gap investments will likely curb buying sentiment, especially in new and station-adjacent complexes that have surged in price over the past few months.

The new regulations tighten lending, subscription, and tax rules. Loan-to-value ratios for non-homeowners (or those selling existing homes) will drop from 70% to 40%, with loans completely prohibited for existing homeowners. Capital gains taxes will increase by 20 percentage points for owners of two homes and 30 percentage points for three or more, while the long-term holding special deduction will be excluded. A two-year residency requirement is added to the existing two-year ownership rule for tax exemption on single-home sales.

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With the land transaction permit zone taking effect on the 5th, transaction volumes are expected to decrease, and a tug-of-war will likely begin between sellers and genuine buyers.

Acquisition taxes will rise to 8% for two-home owners and 12% for three-home owners. The exclusion of consolidated real estate holding tax for privately purchased rental properties will also be removed. Perhaps the most significant change is the prohibition of 'gap investment', buying a property with a tenant already in place, due to the land transaction permit zone designation. Buyers must obtain government permission for land transactions, move in within four months, and reside for two years. However, a grace period allows buyers of occupied homes to delay residency until the current tenant's lease expires, provided the buyer is not a homeowner.

Real estate industry experts anticipate these measures will dampen speculative demand, reduce transaction volumes, and curb the rapid price increases. Ham Young-jin, head of our bank's real estate research lab, noted that restrictions on gap investments would likely deter buyers in newly developed and station-adjacent complexes that have seen sharp price hikes. He expects transaction volumes to decrease starting November 5th, when the regulations take effect, leading to a standoff between sellers and genuine buyers.

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As rumors circulated that these areas would soon be regulated, buyers seeking to purchase properties with existing tenants rushed to finalize sales contracts recently.

However, concerns linger that the impact might be temporary. Areas like Suji in Yongin and Yeongtong in Suwon, also designated as regulated zones and land transaction permit zones under the '10.15 Measures' last year, still saw significant apartment price increases this year. This has led to worries that the effect of regulating Dongtan and Giheung might be short-lived, especially given the continued rise in prices in 'shuttle-served' areas near semiconductor clusters.

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Conversely, genuine buyers waited for prices to drop after the regulations were imposed, so wouldn't demand pick up if asking prices are adjusted?