[Desk Column] The Era of Intense Study for Homeownership

[Asia Economy Jeong Doohwan, Deputy Director and Head of Construction and Real Estate Department]

It seems that studying is a fate for the younger generation these days. Not only is retaking the college entrance exam common due to the narrow job market, but now it feels like you can't even buy a home without studying.

In response to the old-fashioned criticism, "Why pay money and even join a study group just to buy a house? You just need to put in the effort and visit places," comes the question: "Do you know what 'Aripak' is? How about 'Maraepu'?" "...."

The identities of these unheard words turned out to be apartment complex names. Knowing these is said to be the basic course of real estate study groups. What exactly are they learning that justifies spending precious money? But indeed, it is true that without studying, you can't buy a house these days.

3·6·9·15. This is not an updated version of a popular numbers game. These are the housing price brackets set by the government. Without at least a basic understanding of these numbers, failing the home-buying subject is almost guaranteed.

From now on, anyone buying a house nationwide priced over 600 million KRW must submit a financial plan. In regulated areas, this applies to houses over 300 million KRW. Furthermore, for houses over 900 million KRW in speculative overheated zones, supporting documents must also be provided. There are more than 15 related documents required. At least up to this point, it’s just a matter of simple memorization.

After the December 16 real estate measures, unless you work in a related field, you might end up submitting a blank answer sheet, not just a wrong one, when dealing with taxes on buying and selling houses. The government has intervened in almost every area to control housing prices.

Even acquisition tax, which used to be applied at rates of 1-3% depending on the purchase price, is now divided into 100,000 KRW increments for houses priced between 600 million and 900 million KRW. A calculator is essential to calculate acquisition tax.

What about capital gains tax when selling a house? To put it simply, it’s of intermediate to advanced difficulty. In some areas, you don’t pay capital gains tax if you sell your existing home within three years after buying a new one, but in others, you must move into the new home within one year and dispose of the existing home within that period. Miscalculating the number of owned homes, which determines multi-homeowner status, can lead to serious trouble. Previously, pre-sale rights were only counted as homes during subscription or loan processes, but from next year, if a multi-homeowner disposes of a home in a regulated area, pre-sale rights will also count as one home. This means facing a capital gains tax bomb. However, disposing of the pre-sale rights themselves is not subject to heavy taxation. So this subject also needs to be passed.

When it comes to mortgage loans, it turns into mathematics. The difficulty level is top-tier. The easiest equation is the Loan-to-Value ratio (LTV). Even this has different formulas. In some places, it’s 70%, in others 50% or 40%. It also varies depending on the house price. Loan limits for amounts exceeding 900 million KRW differ by region at 20% or 30%. For houses over 1.5 billion KRW, it’s zero. On top of this, formulas for Debt-to-Income ratio (DTI) and Debt Service Ratio (DSR) must be applied. Unless you know at least one bank loan officer as a private tutor, giving up on calculations is inevitable.

How did buying and selling a house become such a complex equation? When I was young, over 50 years ago, the formula for buying a home was simple. Live frugally while working, rent a small multi-family unit, save money little by little, take out a loan to buy a house, repay it, and when you saved more, upgrade to a bigger place... But if you say that to the younger generation now, you’re likely to be told you don’t understand the reality. How can you save money frugally to buy a house when even a decent 30-pyeong apartment in the metropolitan area costs at least 1 billion KRW, let alone Seoul?

Ultimately, the strange craze for intense real estate study among everyone stems from the government. The reason real estate regulations have become such complex equations is the patchwork measures issued 19 times to control housing prices, gathering every possible regulation.

Is there any other country where buying and selling a single house is this difficult? Before fully understanding the measures already issued, we are already worried about what new measures will be announced. How long will this mole-whacking style patchwork housing price policy continue?

This content was produced with the assistance of AI translation services.