Last Year’s Land Sales Hit Record 'Low'... Will the 'Land Transaction Permission System' Be Lifted?

View of apartments in Ichon-dong, eastern Seoul, from the 63 Building observatory. Photo by Hyunmin Kim kimhyun81@

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Last year, the volume of nationwide land sales transactions plummeted to an all-time low. This is the coldest trading freeze in 17 years since the collection of actual land transaction data began in 2006. In particular, in Seoul, the volume of land sales transactions fell below 100,000 for two consecutive years, prompting calls from various quarters to lift the Land Transaction Permission System (hereinafter referred to as the Land Permission System) to revive the real estate market.

According to the Korea Real Estate Board on the 27th, last year’s nationwide land sales volume recorded 1,136,000 transactions. Compared to 2,219,000 transactions in 2020, when the real estate market was booming, this is about half.

Land transactions in Seoul also sharply declined. From 227,000 transactions in 2020, it dropped to 181,000 in 2021, and then plunged vertically to 96,000 and 93,000 in 2022 and 2023, respectively. Last year’s transaction volume was less than half of the annual average of 200,000 transactions over the past decade (2012?2021).

Kim Taehwan, a researcher at KB Financial Group Management Research Institute, analyzed, "The construction industry has been severely contracted due to rising construction costs, the emergence of real estate project financing (PF) risks, and increased economic uncertainty," adding, "Considering market conditions, it seems difficult for buying sentiment and transaction volume to expand in the short term."

The rate of land price increase also recorded the lowest level since the financial crisis. Last year, the land price increase rate (compared to the previous year) was only 0.82%. Seoul (1.11%) and the metropolitan area (1.08%) recorded price increases in the 1% range. However, this is still much lower than the average of the previous 10 years (Seoul 3.84%, metropolitan area 3.61%).

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[Image source=Yonhap News]

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As the cold wave hits land transactions, interest in lifting the Land Permission System is growing. There is a need to lift this system to normalize the market. Recently, President Yoon Seok-yeol’s actions have further raised these expectations. On the 21st, at a public discussion on people’s livelihoods, President Yoon announced plans to significantly lift green belts in non-capital areas, and on the 26th, he declared the lifting of military facility protection zones totaling 339㎢, including 46.4㎢ (about 14 million pyeong) in Gangnam, Seocho, and Songpa districts. Large-scale redevelopment of prime land in Gangnam has become possible.

The Land Permission System is a measure to curb land speculation, designated by the Seoul Metropolitan Government and the Ministry of Land, Infrastructure and Transport. In areas where the permission system applies, buyers must reside or operate on the property for two years after purchasing housing, commercial buildings, or land. ‘Gap investment,’ where properties are rented out or leased with a deposit, is not allowed. Currently, in Seoul, areas such as Mok-dong in Yangcheon-gu, Yeouido-dong in Yeongdeungpo-gu, Seongsu-dong in Seongdong-gu, and Apgujeong-dong in Gangnam-gu, which have major reconstruction complexes, are designated as Land Permission System zones. The designation period for these zones expires on April 26. Yongsan-gu’s Ichon-dong, Hangang-ro 1?3 ga, and Yongsan-dong 3-ga expire on May 19, while Gangnam-gu’s Samseong-dong, Cheongdam-dong, Daechi-dong, and Songpa-gu’s Jamsil-dong are set to expire on June 22.

Residents of these areas and real estate industry officials emphasize that the system should not be extended to prevent further contraction of transactions. A resident in Mok-dong said, "Even if I want to move within the same neighborhood, I can’t because of the Land Permission System," adding, "House prices are already falling, so I don’t understand how much longer they want to restrict actual residence transactions to control prices."

A real estate agent office in Gangnam criticized, "It’s the spring moving season, but no one is coming to see properties," and said, "They need to lift the Land Permission System first to enable moving, but the government is only announcing policies to revitalize reconstruction and is engaging in desk-bound administration." A real estate industry official said, "The government is more worried about transactions not happening than prices falling, and since the Land Permission System was introduced to prevent the market from overheating, it is reasonable to consider lifting it in the current situation."

[Image source=Yonhap News]

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There are also concerns about whether lifting the Land Permission System will be effective given the market is frozen solid. The government lifted the system last November for non-apartment properties in Gangnam-gu and Songpa-gu, Seoul, but transactions did not normalize.

Han Mundo, a professor in the Department of Real Estate at Seoul Digital University, said, "Currently, market participants cannot expect future price increases as land and housing prices remain at levels that do not encourage optimism, and overall sales sentiment is depressed due to economic slowdown," adding, "Considering the conventional wisdom that real estate prices go down when the government tries to raise them and go up when it tries to lower them, it is unlikely that lifting the Land Permission System will have a significant effect."

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