Eradicating Speculative 'Real Estate Shopping' by Foreigners

Increase in Foreigners' Domestic Real Estate Transactions
Loan Regulation Evasion and Inability to Verify Multiple Home Ownership
Regulatory Bills Such as Differential Taxation and Prior Approval System Proposed One After Another

[Asia Economy Reporter Jo Gang-wook] As foreign real estate transactions in South Korea surge, especially in the metropolitan area, regulatory moves to block speculative trading are emerging. Opposition parties are also seen proposing regulatory bills that include differential taxation and the introduction of a prior approval system.

According to the government and the National Assembly on the 29th, Kim Seung-soo, a member of the People Power Party, took the lead in proposing the "Partial Amendment to the Act on Real Estate Transaction Reporting, etc. (hereinafter referred to as the Real Estate Transaction Act)" the day before. The core of this bill is that foreigners must obtain prior approval to trade real estate in speculative overheated districts and regulated areas.

Rep. Kim stated, "Foreign real estate shopping that can cause a sense of deprivation among citizens must be eradicated," adding, "Through the amendment of the Real Estate Transaction Act, the acquisition of real estate by foreigners in speculative overheated districts and regulated areas should be changed from a reporting system to an approval system."

Under the current Real Estate Transaction Act, foreigners can acquire domestic real estate by simply reporting, regardless of scale or purpose, except for land subject to approval in specific areas such as military facility protection zones and cultural heritage protection zones. Furthermore, if they purchase domestic real estate with money borrowed from overseas financial institutions, loan regulations applied to nationals do not apply, and there is no way to verify whether they own multiple houses, making it difficult to impose heavy taxation.

On the same party, Rep. Hong Seok-joon proposed on the 1st of last month a revision to the "Income Tax Act and the Act on Real Estate Transaction Reporting, etc." aimed at eliminating capital gains tax exemptions when foreigners sell real estate they own and strengthening reciprocity regulations on real estate acquisition.

Independent Rep. Lee Yong-ho also proposed amendments to the Local Tax Act and Income Tax Act to impose heavy acquisition and capital gains taxes on foreigners' housing transactions. In a press release on the 27th, Rep. Lee said, "Unlike nationals, foreigners are not subject to regulations on mortgage loan ratios or funding plans, so they could freely 'pick up' in the already scarce metropolitan area," adding, "We need to improve the system by imposing heavy capital gains tax on profits from foreign real estate transactions or strengthening holding taxes on them."

According to the Ministry of Land, Infrastructure and Transport and related industries, as of the end of 2019, the land owned by foreigners in South Korea was 248.7㎢, about 0.2% of the total land area (100,378㎢). This is approximately 86 times the size of Yeouido (2.9㎢), and in terms of official land price, it amounts to about 30.7758 trillion KRW.

Especially last year, amid the rapid rise in housing prices, foreign real estate transactions in South Korea also increased significantly. The Korea Real Estate Board reported that last year, foreign transactions of buildings (including detached houses, multi-family houses, apartments, and commercial officetels) in South Korea totaled 21,048 cases, an 18.5% increase from the previous year. This is the largest scale since the Real Estate Board began compiling related statistics in January 2006.

Also, according to the "Issues and Tasks Related to Foreigners' Acquisition of Domestic Real Estate" published by the National Assembly Research Service in October last year, the number of foreign real estate transactions in South Korea, which was 15,429 cases for the first time in 2014, rapidly increased to 21,126 cases in 2016 and 26,062 cases in 2018. Although it slightly decreased to 23,506 cases in 2019, it recorded 17,365 cases until August last year, showing an increase in the average monthly transaction volume compared to the previous year.

In terms of amount (official land price), foreign-owned land in Seoul was the most concentrated, valued at 11.4175 trillion KRW. Gyeonggi Province also approached 5 trillion KRW. Combining foreign-owned land in Seoul and Gyeonggi Province exceeds 15 trillion KRW.

The National Assembly Research Service suggested the following tasks: △Regulating speculative real estate acquisition by non-resident foreigners △Building data on foreigners' real estate acquisition status △Reintroducing the approval system △Applying differential taxation on foreigners' domestic real estate acquisition.

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