Seoul Land Transaction Permit Zone Redesignation: Gangnam 3 Districts & Yongsan for 6 Months
The Seoul Metropolitan Government and the Ministry of Land, Infrastructure and Transport have decided to designate the apartments in the three districts of Gangnam (Gangnam, Seocho, Songpa) and Yongsan as a land transaction permit zone.
This decision was made just 35 days after de-regulating the Jamsil, Samsung, Daechi, and Cheongdam areas in February, raising questions about the consistency of the policy.
This change is causing confusion in the real estate market, and discussions about the effectiveness of the new regulations are actively taking place.
📌 Redesignation of Land Transaction Permit Zone: What is the Issue?
1️⃣ Gangnam 3 Districts & Yongsan Entirely Consolidated as 'Maximum Measure'
This action marks the first case of designating an entire municipality as a land transaction permit zone. It significantly differs from past decisions that regulated specific apartment complexes or neighborhoods. The reason the Seoul government took this measure is that house prices in the Gangnam area have risen sharply since the de-regulation of 'Jamsil-Samsung-Daechi' areas.
The target area encompasses all apartments in Gangnam-gu, Seocho-gu, Songpa-gu, and Yongsan-gu, amounting to approximately 400,000 units. This regulation will be in effect for six months from March 24, 2024, to September 30, 2024. A key aspect of the regulation is the prohibition of purchases utilizing jeonse, also known as 'gap investments', allowing only transactions for actual residence purposes for two years.
As a result of this change, the area of the land transaction permit zone in Seoul will increase threefold from the existing 52.79㎢ to 163.96㎢. Consequently, about 27% of the total area of Seoul (605.24㎢) will be subject to this regulation. This is expected to have a significant impact on the real estate market.
2️⃣ Increased Market Confusion… Criticism of 'Inconsistent Policies'
Recently, there has been a flood of criticisms regarding the confusion caused by the Seoul government's policy changes. A month ago, regulations were relaxed to revitalize the market, but now they are showing a conflicting stance on tightening regulations again to curb rising house prices.
Such frequent changes in policy not only diminish trust in the market but also raise concerns about potentially leading to price instability. A Seoul government official stated, "There has been a quicker rise in house prices than anticipated, so we will maintain the land transaction permit zone until the market stabilizes," but criticisms continue regarding the inconsistent regulatory approach making the real estate market even more confusing.
Ultimately, this situation is generating anxiety among both investors and consumers, leading to calls for a more cautious approach. Clear and consistent policies are now required to stabilize the market.
3️⃣ Rising House Prices, Is It Really Due to 'Speculation'?
The Seoul government and the Ministry of Land claim that the purpose of this measure is to 'block speculative transactions.' However, there is controversy over whether the recent rise in real estate prices in the Gangnam area is indeed due to speculative forces.
📈
Analysis of Factors Leading to Rising House Prices
1️⃣
Psychological Reaction Due to Policy Easing
The lifting of regulations led many potential buyers who were on hold to enter the market, consequently causing prices to rise.
2️⃣
Expectations of Interest Rate Cuts
With the Bank of Korea lowering the base rate to 2.75%, financing became easier, increasing demand for home purchases.
3️⃣
Easing of Loan Regulations
As lending criteria were relaxed in the financial sector, securing funding became easier, strengthening the buying momentum.
In conclusion, the rise in housing prices in Gangnam 3 districts and Yongsan appears to stem not merely from speculative demand but from changes in policies and market expectations.
In this context, voices warning that excessive regulatory strengthening could distort the market are growing louder.
📌 The 'Smart One' Phenomenon and Deepening Polarization
The current housing policy further highlights the 'smart one' phenomenon.
Firstly, the burden on housing purchases has increased due to the heavy taxation on multi-homeowners. Consequently, multi-homeowners tend to concentrate on high-end properties in popular areas like Seoul and Gangnam rather than maintaining multiple properties.
As a result, the prices in core areas like Gangnam and Yongsan continue to rise. In contrast, the real estate markets in local or peripheral areas are facing stagnation. This trend is deepening the polarization within the real estate market.
The impact of the current policy on the real estate market will continue to be a matter of ongoing attention.
📉
The Distortion Effects of Heavy Acquisition Tax Policy on the Market
1️⃣
By limiting additional purchases by multi-homeowners, the supply of listings decreases, leading to rising house prices.
2️⃣
A growing tendency to prefer jeonse and monthly rent rather than buying is causing instability in the jeonse and rental markets.
3️⃣
There is an increased preference for specific areas, particularly Gangnam and Yongsan, resulting in sharp price increases in some regions.
In such a situation, if the land transaction permit zone is expanded, the transactions for apartments in Gangnam 3 districts and Yongsan are likely to become even more restricted. As listings dwindle, the negative effects of price increases may worsen.
📌 What Effects Will This Regulation Have?
The designation of the land transaction permit zone is expected to lead to a decrease in transaction volumes in the short term. Since only purchases for actual residence purposes are allowed, the demand that had entered the market through gap investments is likely to diminish, leading to a stagnation of available listings.
However, from a long-term perspective, the price stabilization effect may not be significant. In fact, even when similar regulations were implemented in areas like Gangnam and Yeouido between 2018 and 2020, house prices continued to rise. Additionally, similar regulations introduced in the early 2010s temporarily reduced transaction volumes but ultimately resulted in an upward trend in prices again.
In conclusion, this measure might have some effect in restraining buying momentum in the short term, but there is a prevailing opinion that it has limitations in preventing the fundamental rise in house prices.
📌 Conclusion: The Government and Seoul City Are Further Confusing the Market
The recent establishment of land transaction permit zones in the Gangnam 3 districts and Yongsan has raised several concerns.
First, these changes are exacerbating market confusion; second, they are resulting in weakened trust in the policies.
Third, they reflect a tendency to provide temporary fixes without analyzing the causes of rising house prices properly.
In this situation, fundamental solutions are necessary.
Instead of short-term regulations, policies like increasing supply should be implemented alongside, maintaining consistency in policies to enhance market predictability.
Lastly, precise market diagnostics utilizing transaction data is essential.
Whether the current redesignation of the land transaction permit zone will merely be a temporary measure or show actual effects will depend on future developments.
At this moment of uncertainty and shaken trust in the policies, attempting to control the market solely through regulations could lead to negative repercussions.
Therefore, the government and the Seoul Metropolitan Government should focus on creating fundamental market stabilization measures rather than stopping at short-term regulations.
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