Villa Transactions in Seoul Plunge 74% Despite Avoiding Land Permit Rules [Real Estate AtoZ]

Transaction Volume Increased in the First Half of This Year Compared to Last Year
Sharp Drop in Multiplex and Multi-Family Housing Transactions After Policy Announcement

Following the announcement of the October 15 real estate measures, transaction volumes for multi-family and row houses (villas) also plummeted. Unlike apartments, where a transaction freeze has resulted from land transaction permit zone regulations, the main cause for villas is considered to be the reduced loan limits.

According to the Ministry of Land, Infrastructure and Transport's actual transaction price system on November 12, the number of transactions for multi-family and row houses in Seoul dropped from 3,662 in the month prior to the announcement (September 16 to October 15) to 961 after the announcement (October 16 to November 10). Due to the new measures, the loan-to-value (LTV) ratio for home mortgage loans on multi-family and row houses has been reduced to 40% of the asset value, making it necessary for buyers to have sufficient cash reserves to make a purchase.

Villas are not subject to land transaction permit zone regulations, so there is no obligation for actual residence. However, if there is at least one apartment building within the same complex, such as Hannam The Hill or Gwangjang Hillstate, a land transaction permit is required. In addition, multi-family and row houses located in areas designated by the Seoul Metropolitan Government as candidates for the 'Shintong Planning' redevelopment initiative are included in land transaction permit zones.

This situation has put a damper on the market, which had seen increased demand from both investors hoping for redevelopment benefits such as 'Shintong Planning' and genuine buyers unable to afford apartments. According to Zigbang, the number of multi-family and row house transactions in Seoul reached 16,156 in the first half of this year, up 26.3% from 12,790 in the first half of last year. However, the transaction volume in the second half of this year was 11,205, which is only about 70% of the first half's figure.

Ham Youngjin, head of the Real Estate Research Lab at Woori Bank, explained, "Even for villas, transaction volumes had been increasing until this year, but it appears that a brake was applied after mid-October. Multi-family and row houses have not attracted attention as alternative investment destinations because their asset value growth potential is not as high as that of apartments. After the announcement of the real estate measures, demand contracted, leading to a simultaneous decline in transactions."