Investment Sentiment Frozen... Apartment Transactions Under 100 Million Dropping Sharply

Government High-Intensity Investigation... Investment Warning Notice

Apartment complexes in Dongjak-gu as seen from the 63 Square Observatory in Yeouido, Seoul on the 22nd / Photo by Jinhyung Kang aymsdream@

The market for ultra-low-priced apartments under 100 million KRW, which had gained popularity among investors as a niche investment option for small amounts, is rapidly freezing up. This is due to the government's announcement of a high-intensity investigation to block speculative forces, as well as a cooling sentiment among buyers caused by the sharp increase in comprehensive real estate taxes for multi-homeowners. Some voices express concern about the risks to investors due to the transaction cliff, given that the buying frenzy for these ultra-low-priced apartments was excessive.

According to industry sources on the 23rd, the transaction volume of local apartments priced under 100 million KRW, which surged until July and August, has recently plummeted.

The sharp decline in transaction volume is particularly noticeable in Gyeonggi and Gyeongnam regions. In Gyeonggi Province, the number of apartment transactions under 100 million KRW since July last year reached 33,138, and in Gyeongnam, it was 29,052 during the same period.

According to Asil, a real estate big data company, in Wolgot-dong, Siheung-si, the Punglim I-One 1st complex 32㎡ (exclusive area) saw a bulk of 80 transactions in the first quarter of this year alone, but the transaction volume sharply declined in the second half. After 8 transactions in July, it dropped to 5 each in August and September, and only 1 transaction was recorded last month. The Jueun Cheongseol Apartment in Gongdo-eup, Anseong-si, which recorded the highest cumulative transaction volume in Gyeonggi Province this year, also shows a clear decline in transactions. For the 39.75㎡ unit, there were 53 transactions in June, 46 in July, and 52 in August, but after September, the volume fell to the 20s. In Gyeongnam, which had the highest number of apartment transactions under 100 million KRW among local provinces, the buying trend is also significantly weakening. The transaction volume of the 49.98㎡ unit in Seongwon, Seongsan-gu, Changwon-si, which reached 73 in May, sharply decreased to 14 in October.

The transaction volume of apartments under 100 million KRW surged after the government strengthened the housing acquisition tax rate in the '7·10 Real Estate Measures' last year. According to the Ministry of Land, Infrastructure and Transport, the transaction volume increased by about 55%, from 168,130 cases between May 2019 and June 2020 to 260,555 cases between July 2020 and August 2021. The surge in transactions was due to the balloon effect of government regulations. Although the government raised the acquisition tax rate for multi-homeowners up to 12%, houses priced under 100 million KRW were excluded from this, and they were also excluded from the count of owned houses at the time of acquisition.

However, as the government recently launched a planned investigation into actual transactions of low-priced apartments purchased by corporations and outsiders, transactions appear to be rapidly shrinking. A representative from a real estate agency in Wolgot-dong, Siheung, said, "Inquiries from corporate and outsider investors, who used to come almost daily until the first half of the year, have completely stopped in recent months," adding, "Since the government is focusing on investigating transactions of apartments under 100 million KRW, the transaction cliff is likely to continue for a long time."

Investors considering selling after the 'comprehensive real estate tax bomb' may find themselves hampered. A frequent misunderstanding regarding apartments under 100 million KRW concerns their inclusion in the count of houses. While apartments under 100 million KRW are excluded from the house count at the acquisition stage, they are included in the house count for comprehensive real estate tax purposes. Due to frequent inquiries, the National Tax Service also guides, "When calculating holding tax, houses under 100 million KRW are included in the house count," and "An increase in the number of houses may lead to the application of a higher comprehensive real estate tax rate."

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