Reduction of Minimum Land Transaction Permit Area... Red Light for 'Ultra-Small Gap Investment'

Land Transaction Permit Area Strengthened from Over 18㎡ to Over 6㎡
Only Regular Transactions Allowed in Permit Zones... Gap Investment in Jeonse-Backed One-Room Apartments Blocked
Increased Holding Tax Burden and Reduced Buyer Demand Lower Product Appeal

Apartment complex in the Seoul area (Photo by Yonhap News)

[Asia Economy Reporter Ryu Tae-min] The red light for ‘ultra-small gap investment’ rampant in land transaction permission zones in areas such as Gangnam and Songpa in Seoul has grown stronger. As the land area criteria for permission targets have been tightened from over 18㎡ to over 6㎡, some small apartments that were previously excluded from the target are expected to no longer be available for gap investment.

According to the Ministry of Land, Infrastructure and Transport on the 22nd, the government held a Cabinet meeting that day and approved a revision of the Enforcement Decree of the Real Estate Transaction Reporting Act, which adjusts the land transaction permission area criteria by land use zone. The area for residential zones will be reduced from the current 180㎡ to 60㎡, commercial zones from 200㎡ to 150㎡, and industrial zones from 660㎡ to 150㎡.

This regulatory tightening aims to enhance the effectiveness of preventing speculative transactions in niche areas. The land transaction permission zone allows the Minister of Land or the mayor/governor of a city/province to set the target area within a range of 10-300% of the standard area. Under the current criteria, apartments with a site area of 18㎡ or less are not regulated, leading to concentrated demand and continuous criticism of a ‘regulatory loophole.’

In fact, the Resence apartment with 27㎡ (exclusive area) located in Jamsil-dong, Songpa-gu, designated as a land transaction permission zone in June 2020, saw its site area of 13㎡ excluded from the permission target, causing prices to soar. It was traded as low as 870 million KRW in June 2020, just before the designation, but by September last year, it surged to 1.275 billion KRW, exceeding ‘100 million KRW per pyeong.’

Additionally, gap investments in Samsung Hillstate 1st Complex in Samseong-dong, Gangnam-gu, with 26㎡ and 31㎡ units, which could be purchased with jeonse or monthly rent, will also be blocked. The 31㎡ unit in this complex rose from 1.155 billion KRW in June 2020 to 1.28 billion KRW in August last year, increasing by over 100 million KRW.

However, applying the new criteria means that all houses with a site area exceeding 6㎡ will be subject to land transaction permission. When designated as a land transaction permission zone, usually only actual residents can purchase houses, making gap investment with jeonse impossible.

Song Seung-hyun, CEO of Urban and Economy, said, “Most ultra-small apartments are studios, and since sales will only be allowed to actual residents in the future, demand for them is expected to decrease significantly,” adding, “With the recent increase in tax burdens such as holding taxes on multiple homeowners, their marketability is likely to decline.”

Meanwhile, the revision also includes strengthening the obligation to submit a funding plan when acquiring land. In the metropolitan area, major cities, and Sejong City, a funding plan must be submitted regardless of transaction amount for share transactions, and for non-share transactions, when acquiring land worth 100 million KRW or more. For other regions, the standard is when purchasing land worth 600 million KRW or more.

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