Concerns Over Overheating in Large-Scale Development... Government to Freeze Real Estate Transactions Around Yongsan Area

Designation of 770,000㎡ Land Transaction Permission Zone in Yongsan Maintenance Depot Area from the 20th
Targeting Early-Stage Projects Allowing Union Member Move-in Rights Transactions

Permission from District Mayor Required for Residential Land Transactions Exceeding 18㎡
Possibility of 'Niche Premium' for Small-Scale Shares

Seoul Yongsan-gu Hangangno-dong Maintenance Depot Site View (Photo by Lee Chunhee)

[Asia Economy Reporter Lee Chun-hee] The area around the Yongsan-gu Hangangno-dong railway maintenance depot in Seoul, which had heated up the market last week following the government's large-scale supply plan announcement, has become impossible to trade without government approval.

The Ministry of Land, Infrastructure and Transport announced on the 14th that the site of the railway maintenance depot in Hangangno-dong, Yongsan-gu, and nearby redevelopment and reconstruction project areas will be designated as a land transaction permission zone starting from the 20th, following a review by the Central Urban Planning Committee.

Earlier, on the 6th, the government announced through the 'Plan to Strengthen the Housing Supply Base in the Metropolitan Area' that a total of 8,000 units, including urban-type public housing, would be supplied on the Yongsan maintenance depot site. It is known that investors flocked to the market with expectations that the redevelopment and reconstruction equity values of the surrounding aging residential areas would rise due to this plan.

Accordingly, the government stated that as part of anti-speculation measures announced with the supply plan, if there were concerns about stimulating the surrounding areas, it would push for the designation of land transaction permission zones. Based on the judgment that speculative demand was flowing into Hangangno-dong and Ichon 2-dong (Seobu Ichon-dong) areas, the land transaction permission zones were designated.

According to the Ministry of Land, there are currently 17 redevelopment and reconstruction projects underway in Hangangno-dong and Ichon 2-dong. The Ministry decided to designate a total of 770,000㎡ as land transaction permission zones, including the 510,000㎡ Yongsan maintenance depot site and 13 project sites totaling 260,000㎡ that are adjacent to or within the influence area of the site and have reached the early stages of development such as forming promotion committees.

Land Transaction Permission Zone Designation Area around the Railroad Maintenance Depot in Yongsan-gu, Seoul. The areas marked in red are the newly designated zones. (Provided by the Ministry of Land, Infrastructure and Transport)

Compared to earlier reports that a wide area including Wonhyo-ro, Hangang-ro, Ichon, and Singye-dong around the Yongsan maintenance depot, expected to benefit from the depot's development halo effect, would be designated as permission zones, only a very limited area has been designated. The Ministry of Land stated, "The principle was to designate areas centered on projects in the early stages where transfer of association member status is allowed." Currently, in speculative overheating zones, for reconstruction, transfer of association member status is only allowed before the approval of the association establishment, and for redevelopment, only before the management disposition plan.

In particular, in Ichon 2-dong, two reconstruction projects?Jungsan Apartment and Ichon 1 District?covering 50,000㎡ were designated. Although the Ichon Sibeom and Mido Yeonrip areas in Ichon 2-dong are currently designated as special planning zones and redevelopment projects are underway, they were excluded. A Ministry of Land official explained, "(The Ichon Sibeom and Mido Yeonrip areas) were excluded from this designation because the projects have not yet reached a stage where promotion committees have been formed or development has become visible."

As predictions emerged that the government would designate this area as a land transaction permission zone, the real estate market in this area, which had begun to shrink, is expected to regain calm. When designated as a land transaction permission zone, acquiring land exceeding a certain area requires prior approval from the head of the relevant local government, specifying the intended land use.

The current legal standards for areas requiring approval are over 180㎡ for residential areas and over 200㎡ for commercial areas. However, since the area has many small-scale apartments and row houses, the government plans to apply strict regulations by lowering the standards to the minimum legally allowed (one-tenth of the standard area), such as 18㎡ and 20㎡, thereby expanding the scope of application.

A representative from Ichon 2-dong B Real Estate Agency said, "Right after the announcement of the maintenance depot site development, buyers continued to visit and actual transactions were made. However, inquiries have almost stopped this week." This is because transactions have become practically impossible due to the designation of the permission zone.

The area around Ichon 2-dong, Yongsan-gu, Seoul, which is scheduled to be designated as a land transaction permission zone starting from the 20th (Photo by Lee Chunhee)

The land transaction permission zone designation plan, reviewed by the Central Urban Planning Committee on the 14th, was announced immediately on the 15th and is scheduled to take effect from the 20th. The designation will be valid for one year until May 19 of next year.

After the designation, if a land transaction contract is concluded without the approval of the local government head, the offender may face imprisonment of up to two years or a fine of up to 30% of the land price. Such contracts will also be null and void.

Even after approval, the land must be used only for the approved purpose for a certain period. For residential land, it must be used for actual residence for two years, during which sale or lease is not allowed. If the usage obligation is not fulfilled, an order to comply will be issued within three months, and a penalty of up to 10% of the acquisition price will be imposed annually until compliance.

Regarding this, a representative from D Real Estate Agency in the area said, "Even if the approval area standard is lowered to the minimum of 18㎡, demand for smaller-scale equity transactions below this size is expected to increase." Many old apartments and row houses in the area have land shares of 12 to 15㎡.

The Ministry of Land plans to crack down on transactions below the approval area, such as those under 18㎡ in residential areas, through focused investigations by the Real Estate Market Illegal Activities Response Team. It will also conduct crackdowns on nearby areas excluded from the designation and plans to expand the designated zones if additional speculative demand inflows are detected.

Kim Young-han, Director of Land Policy at the Ministry of Land, said, "The land transaction permission zones were designated based on the judgment that it is necessary to preemptively block speculative expectations of land price increases centered on redevelopment projects near the Yongsan maintenance depot site." He added, "For other development projects promoted under the 'Plan to Strengthen the Housing Supply Base in the Metropolitan Area,' we plan to push for designation of permission zones as needed, considering project scale, concerns about speculation, and surrounding conditions."