[10.15 Measures] LTV for First-Time Buyers in Northern Seoul and Gyeonggi Cut from 70% to 40%... Gap Investments Blocked in Seoul

Third Real Estate Policy by Lee Administration
Government Vows to "Curb Market Instability Early"
Land Transaction Permit Zones Also Designated
Market Expected to Enter a Pause for the Time Being

The government has designated all of Seoul and certain parts of Gyeonggi Province adjacent to the Gangnam area as extensive regulated zones to block the so-called "balloon effect," in which demand shifts to neighboring areas if only the specific "hotspot" regions with rapidly rising housing prices are targeted. After showing signs of stabilization in the second half of last year, Seoul apartment prices surged again this year, particularly in March when the Seoul Metropolitan Government lifted the land transaction permit zone, and in June before the new administration announced household debt management measures. Although a comprehensive housing supply plan was announced early last month, the market perception that "nothing has really changed" led to speculative demand entering the market, heightening supply-demand instability even further.

Despite signs of an economic slowdown, the Bank of Korea has been hesitant to lower interest rates, as it is concerned that doing so could further destabilize the real estate markets in Seoul and other preferred locations. Deputy Prime Minister and Minister of Economy and Finance Koo Yooncheol stated after the real estate ministers' meeting that "recently, price volatility in the real estate market has increased, especially in Seoul and the metropolitan area," and added, "The government has prepared measures under the principle of managing the market stably by balancing both demand and supply, with the top priority being the stability of housing for the public."

Apartment complexes in the Seocho and Yongsan areas as seen from Namsan, Seoul. Photo by Yonhap News

With all of Seoul and 12 areas in Gyeonggi Province designated as adjustment zones and speculative overheating districts, those wishing to purchase homes in these areas will immediately face loan restrictions. For newly regulated areas such as northern Seoul, Gwacheon, Bundang, and Suwon, the loan-to-value (LTV) ratio for first-time homebuyers will be lowered from 70% to 40%. The same applies to single-homeowners buying under the condition of selling their existing property. Homeowners have already been subject to an LTV of 0%, effectively restricting their access to loans. In regulated areas, the first-time homebuyer LTV of 70% and the obligation to move in within six months will also apply. Mortgage loans with ownership transfer conditions are prohibited, and the loan limit for single-homeowners will be unified at 200 million won, further restricting mortgage loans. If a borrower has unsecured loans exceeding 100 million won, they will be prohibited from purchasing homes in regulated areas for one year from the date the loan is executed.

In addition, acquisition and capital gains taxes for owners of multiple homes will be increased, and the special long-term holding deduction will be entirely excluded, making the real estate tax regime less favorable. The capital gains tax exemption for single-homeowners will be tightened from "two years of ownership" to "two years of ownership plus two years of residence." For homes in the metropolitan area, there will be a three-year resale restriction (one year for officetels), and various subscription rules will become stricter, including priority for local residents, strengthened first-priority eligibility, differentiated point system application rates, and restrictions on winning multiple times. Submission of funding plans and move-in plans will also become mandatory when purchasing a home.

While the expansion of regulated areas such as adjustment zones and speculative overheating districts is intended to curb home purchases through financial sector borrowing and thereby stabilize the market, the land transaction permit zone is a separate measure aimed at blocking gap investment. The government found that after designating the three Gangnam districts and Yongsan-gu as land transaction permit zones in March this year, the proportion of gap investments sharply declined in these areas, but gap investing remains prevalent in areas not designated as permit zones.

On October 15, Koo Yoon-chul, Deputy Prime Minister and Minister of Economy and Finance, attended a joint briefing on housing market stabilization measures held at the Government Seoul Office in Jongno, Seoul, and announced real estate measures. Attending the announcement were Lee Ok-won, Chairman of the Financial Services Commission (from the right), Kim Yoon-duk, Minister of Land, Infrastructure and Transport, Deputy Prime Minister Koo, Yoon Chang-ryul, Director of the Office for Government Policy Coordination, and Lim Kwang-hyung, Commissioner of the National Tax Service. Photo by Jo Yongjun.

By designating all of Seoul and 12 areas in Gyeonggi Province, buyers of apartments in these regions will be required to reside in the property for two years. In areas designated as land transaction permit zones, buyers must obtain approval from the relevant local government office (city, county, or district). Given the broad scope of these designations, the government anticipates that frontline local governments may face a shortage of administrative capacity, and has decided to address procedural inconveniences by working with local governments to establish work guidelines.

The market expects that the "panic buying" previously seen in some areas will subside and that the balloon effect will be limited. However, some predict that it will be difficult to completely extinguish the upward momentum in housing prices, especially in the Gangnam area, where ample market liquidity and rising prices persist despite loan restrictions. Park Wongap, Senior Real Estate Specialist at KB Kookmin Bank, commented, "The focus is on preventing moves to higher-tier areas and blocking gap investments in apartments," and added, "In areas with rapid short-term price increases or designated as land transaction permit zones, some properties may come onto the market and prices may fall, leading overall to a period of market stabilization."

Ham Youngjin, Head of Real Estate Research Lab at Woori Bank, said, "This is an emergency measure aimed at completely blocking the balloon effect of rising home prices by sharply raising the level of regulation not only in the highly appreciated Hangang Belt, but also in the Noh-Doh-Gang and Geum-Gwan-Gu areas." He added, "The 'FOMO' and 'panic buying' demand in the Gangnam area and Hangang Belt is expected to subside." However, he also stated, "Given the abundance of liquidity, expectations of a base rate cut, and instability in the rental market, it remains to be seen whether these measures will fully suppress expectations of rising home prices and demand from those without homes."

Kim Hyosun, Senior Real Estate Specialist at NH Nonghyup Bank, commented, "While a transaction cliff is inevitable for now, in Gangnam-gu, expectations of rising prices and the scarcity of properties mean that both asking and actual transaction prices are unlikely to fall easily, even if transactions decrease." She also predicted, "Recently, areas that saw rapid price increases such as Mapo, Seongdong, and Gwangjin are expected to be hit hard."