The Less Regulation, the More Balloon Effect: Non-Regulated and Non-Residential Sectors Ablaze

Transaction Volume Soars in Non-Regulated Areas on Outskirts of Seoul Metropolitan Area
Living-Type Accommodation Facilities See Frenzy with 6000 to 1 Competition Rate

Despite the government continuously tightening regulations, including high-intensity loan restrictions targeting the real estate market, housing prices have not stabilized; instead, market distortions caused by the balloon effect are becoming increasingly severe. While apartment transactions in the outskirts of the Seoul metropolitan area, which are free from regulations, have surged, demand is also flooding into non-residential products, causing the subscription market to overheat.

According to the Korea Real Estate Board on the 30th, as of the first half of this year, apartment transactions in seven non-regulated areas of the Seoul metropolitan area totaled 7,077 cases, an increase of about 117% compared to 3,263 cases during the same period last year. The non-regulated areas in the metropolitan area as of the first half include seven locations: Icheon, Dongducheon, Pocheon, Yeoju cities, and Yangpyeong, Yeoncheon, Gapyeong counties. Among them, six neighborhoods in Dongducheon were designated as adjusted target areas on the 27th. The area with the highest transaction volume among the non-regulated regions was Icheon with 2,120 cases, followed by Dongducheon (2,053 cases), Pocheon (1,047 cases), Yeoju (942 cases), Yangpyeong (489 cases), Yeoncheon (226 cases), and Gapyeong (200 cases).

The sharp increase in transactions in non-regulated areas contrasts with the overall apartment transaction volume in the metropolitan area, which was 167,220 cases in the first half, down 29.5% from 237,720 cases the previous year. The increase in transactions in non-regulated areas is interpreted as a balloon effect caused by regulations. In non-regulated areas, the maximum loan-to-value ratio (LTV) for mortgage loans is up to 70%, and the resale restriction period for pre-sale rights does not exceed six months. Moreover, after six months of subscription to the housing subscription savings account (one year in the metropolitan area), both household heads and members qualify for first priority, and there are no restrictions on re-winning. In a situation where soaring housing prices overlap with regulations, both real demand and investors are being attracted.

As regulations focus on housing, the popularity of non-residential products is also soaring. The lifestyle lodging facility 'Lotte Castle Le West' in the Magok district of Seoul received a total of 575,950 applications (based on website subscription reception) for 876 units during the public subscription from the 25th to the 27th. The average competition rate was 657 to 1, with the highest competition rate by unit reaching as high as 6,049 to 1.

In particular, although the sale price of this complex was even higher than nearby apartments in the Magok district, sparking controversy over high prices, the subscription fever did not subside. The sale price for an 84㎡ (exclusive area) unit in this complex was up to 1.61 billion KRW, more than 20% higher than the average apartment price in Magok-dong this month (36.92 million KRW per 3.3㎡). The 49㎡ units were priced between 810 million and 962 million KRW, and the 84?88㎡ units ranged from 1.444 billion to 1.718 billion KRW. Compared to the highest sale price of 700 million KRW for an 84㎡ apartment in the 'Magok 9 Complex' sold last year in the Magok district, this is more than twice as expensive.

Previously, the lifestyle lodging facility 'La Porte Blanc Yeouido' in Yeouido, Yeongdeungpo-gu, Seoul, also recorded a highest competition rate of 140 to 1. In March, the lifestyle lodging facility 'Lotte Castle De Mer' sold in Dong-gu, Busan, recorded an average competition rate of 356 to 1.

The industry's analysis is that the popularity of lifestyle lodging facilities is also due to the low regulatory threshold. Apartments mainly select winners based on a point system, but lifestyle lodging facilities select winners by lottery. With only 10% of the contract deposit paid, pre-sale rights can be resold, and since they are not counted as housing, acquisition tax and capital gains tax surcharges can be avoided.

However, investments in the outskirts of the metropolitan area and non-residential properties are advised to be cautious. Lifestyle lodging facilities are classified as lodging facilities, not residential, and cannot be leased as jeonse (long-term deposit lease). Earlier this year, the government clearly stated that lifestyle lodging facilities "cannot be used as residential purposes and require lodging business registration." It has already warned that facilities used as residential purposes will be subject to enforcement fines.

Ko Joon-seok, an adjunct professor at Dongguk University Law School, said, "Although lifestyle lodging facilities are freer from regulations compared to apartments, they are the first to be hit during economic downturns," urging caution. He added, "The rising trend in the outskirts of Gyeonggi Province should also be seen as a balloon effect caused by soaring housing prices and regulations," and emphasized, "Since the areas that rose last are the first to fall, careful choices are necessary."

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