Gunpo and Ansan Surge 6%... Considering Additional Designation as Regulated Areas

Photo by Mun Ho-nam munonam@

[Asia Economy Reporters Inho Yoo and Yuri Kim] The government has started to reconsider real estate measures just a month after the last announcement. This is because signs of speculative trading of pre-sale rights have been spreading like wildfire, especially in Seoul, non-regulated areas of the metropolitan area, and provincial regions, following the announcement on the 11th of last month to strengthen restrictions on the resale period of apartments in private land. This again reveals the paradox of regulation. If the speculative frenzy is not curbed by the government's 22nd real estate measure, there is a high possibility that the 23rd, 24th, and 25th measures will follow. However, experts diagnose that as the government tightens regulations, the balloon effect is inevitable, making price stabilization through regulation difficult.

◆How much have prices risen in non-regulated areas?= Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki’s statement on the 11th that "necessary measures will be taken if signs of real estate instability appear" reflects the unusual recent price movements not only in Seoul but also in the outskirts of the metropolitan area and some large provincial cities.

In particular, non-regulated areas in the metropolitan area have continued a sharp upward trend due to the balloon effect following the December 16th measures last year. From July onward, pre-sale units in the metropolitan area will not be allowed to be traded until ownership registration, prompting short-term investors to aggressively purchase pre-sale rights, especially in metropolitan areas near subway stations.

According to the KB Real Estate Live On Monthly Housing Price Trend, housing prices in the metropolitan area rose 2.4% from December last year to last month. While Seoul, tightly bound by overlapping regulations, saw a modest increase of 1.49%, Incheon (2.64%) and Gyeonggi Province (3.12%) led the price rises. In Incheon, non-regulated areas such as Yeonsu-gu (4.94%), Namdong-gu (3.34%), and Michuhol-gu (3.15%) showed steep increases, surpassing the average rise in Incheon and driving the upward trend.

Among non-regulated areas in Gyeonggi Province, Gunpo (6.9%) and Ansan (3.77%) showed notable increases. In Ansan, Danwon-gu surged 6.96%, leading the city's rise. These areas are being discussed as top candidates for additional designation as adjusted areas. Bucheon also rose 3.33%, exceeding the average increase in Gyeonggi. Hwaseong (3.0%), which was grouped with Ansan as 'Ansi Fortress,' also rose over 3%. Siheung saw a modest increase of 1.04% during this period.

◆Existing regulated areas also stirring again= Among the metropolitan regulated areas that Deputy Prime Minister Hong is closely monitoring, the upward trend in 'Suyongseong' (Suwon, Yongin, Seongnam) continues. Suwon rose 6.46%, Yongin 4.55%, and Seongnam 3.29%, each exceeding the average increase in Gyeonggi Province. Suwon’s Yeongtong-gu surged 9.71% during this period.

Seoul, which had shown weakness until recently, has also shifted to a stable trend, which is a market instability factor. In Seoul, due to loan restrictions by price, including a complete ban on mortgage loans for apartments over 1.5 billion KRW, the price rise continues mainly in non-Gangnam outer areas where smaller apartments under 600 million KRW are concentrated. Looking beyond the metropolitan area, Daejeon’s housing prices have also risen sharply, increasing 4.82% during this period. Cheongju showed a slight decline during the same period but began a clear upward trend this month following the announcement of the hosting of the synchrotron accelerator.

The most likely regulatory tool is designation as an adjusted area. If non-regulated areas such as Ansan, Gunpo, and Incheon are designated as adjusted areas, they will be subject to various regulations on loans, subscription, and taxation. The loan-to-value ratio (LTV) for mortgage loans will be limited to 50%, and capital gains tax will be increased for multiple homeowners. The non-taxable benefit for single homeowners will also require a two-year residence obligation in addition to the two-year ownership requirement. There is also talk of upgrading already designated adjusted areas such as Suwon, Yongin, and Seongnam to speculative overheating districts. If designated as a speculative overheating district, stronger regulations will apply, such as reducing the LTV to 40%.

Yang Ji-young, director of Yang Ji-young R&C Research Institute, said, "After government regulations, prices have risen mainly in areas where loans are easy and for houses under 600 million KRW," adding, "Even if the government adds more regulations, unless supply issues are resolved, this balloon effect will continue."

◆Will additional regulations be designated in areas with high pre-sale right competition?= The government’s mention of additional regulatory measures seems influenced by the overheated pre-sale market in some non-regulated metropolitan areas. This is evidence that abundant liquidity in the market is still actively flowing into the real estate market.

Above all, subscription competition rates have increased this year. According to the Ministry of Land, Infrastructure and Transport, among the pre-sale complexes supplied until May this year, over 40% recorded subscription competition rates exceeding 20 to 1. In particular, the average subscription competition rates for apartments in Gyeonggi and Incheon from January to May this year were 36.2 to 1 and 31.8 to 1, respectively, more than tripling compared to last year. For example, Hyundai Construction’s 'Hillstate Songdo The Sky,' supplied in March in the non-regulated area of Songdo International City, Incheon, attracted 58,021 applicants (72 to 1) for 804 units.

The problem is that pre-sale rights won through high competition are actively traded in the market immediately, becoming a channel for idle funds inflow. According to the Ministry of Land, Infrastructure and Transport, among complexes in the metropolitan area and major cities with subscription competition rates exceeding 20 to 1 from 2017 to 2019, on average, one in four buyers sold their pre-sale rights within six months after the resale restriction period ended.

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