[Practical Finance] Instead of Highly Competitive Cheongyak, Pre-sale Rights? ... The Issue is 'Mandatory Actual Residence'

With the significant relaxation of the resale restriction period on pre-sale rights and the recent introduction of a lottery system, competition in the Seoul subscription market has surged, drawing the attention of genuine buyers to the pre-sale rights market. However, experts advise caution in trading pre-sale rights, as the obligation to reside still remains, and violating this residency requirement could result in penalties.

[Image source=Yonhap News]

The government’s ‘January 3 Real Estate Measures’ announced in January lifted regulations on all regulated areas except Gangnam, Seocho, Songpa, and Yongsan districts in Seoul, resulting in an increase in lottery-based subscription units. This measure also included easing restrictions on resale limitations and interim payment loans, as well as plans to abolish the residency obligation, contributing to the recovery of sentiment in the pre-sale market.

Additionally, from April 7, the revision of the Enforcement Decree of the Housing Act eased restrictions on the resale of apartment pre-sale rights. Thanks to these policy effects, subscription competition rates have significantly risen in certain areas this year. The first-priority subscription competition rate in Seoul for the first half of this year was recorded at 51.86 to 1, a sharp increase compared to the second half of last year (5.84 to 1) and the first half of last year (29.57 to 1).

Transactions of pre-sale rights have also increased. In the first half of this year, about 24,000 pre-sale rights were traded nationwide, marking an approximately 68% increase compared to the second half of last year. Particularly, pre-sale rights transactions in the metropolitan area more than doubled, indicating heightened interest in the pre-sale market. The rising subscription competition rates and increasing pre-sale prices are interpreted as factors turning attention toward pre-sale rights.

A real estate industry official said, "Investing in pre-sale rights is a means to acquire a newly built apartment without competing in the subscription market at a relatively lower price," adding, "As the subscription market revives and pre-sale prices rise, interest is expected to grow further."

The issue is that the residency obligation still applies to houses under the pre-sale price ceiling system. Currently, apartments under the pre-sale price ceiling system in the metropolitan area are subject to a residency obligation of 2 to 5 years. Violating the residency obligation can result in imprisonment for up to one year or a fine of up to 10 million won. Subscription winners cannot sell their pre-sale rights or lease them out to pay the remaining balance.

Olympic Park Foreon in Dunchon-dong, Gangdong-gu, Seoul, is a representative case. Although the pre-sale rights for this apartment, sold at the end of last year, can be sold from the end of this year, the residency obligation still remains, effectively blocking transactions. A revision to the Housing Act, including the abolition of the residency obligation for pre-sale apartments, is scheduled to be submitted to the legislative subcommittee on the 20th, but it is expected to be difficult to proceed to actual discussion.

The high capital gains tax imposed on pre-sale rights transactions remains a burden. For pre-sale rights, holding the contract for less than one year requires paying 70% of the capital gains as tax, and selling within two years requires paying 60% of the gains. The government announced plans to reduce the capital gains tax burden by taxing short-term capital gains at 45% for holdings under one year and abolishing the capital gains tax for holdings over one year, but since this requires legal amendments, implementation remains uncertain.

Yoon Soo-min, a real estate specialist at NH Nonghyup Bank, said, “With the recent rise in subscription competition rates for Seoul apartments and the opportunity to purchase newly built apartments at prices lower than market value, pre-sale rights transactions have increased. However, for apartments under the metropolitan area pre-sale price ceiling system, the residency obligation remains, so buyers who lack funds and plan to lease out the apartment after purchasing the pre-sale rights may face difficulties, so caution is advised.”

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