While Domestic Buyers Are Restricted... Foreigners Continue K-Real Estate Shopping

Although the real estate market in the first half of this year continues to experience an extreme transaction freeze, foreign buyers have been relatively active. While domestic buyers find it difficult to escape various heavy taxes such as loan restrictions and acquisition and holding taxes, it has been pointed out that foreigners are relatively free from such regulations.

According to the Court Registry Information Plaza on the 27th, the number of domestic applicants for ownership transfer registration (sales) of collective buildings (apartments, villas, officetels) from January to May this year was 415,339, a sharp decrease of 41.43% compared to 709,239 during the same period last year. However, the decrease was relatively smaller for foreigners. During this period, the number of foreigners applying for ownership transfer registration dropped by only 27.01%, from 5,994 last year to 4,375. The overall sharp decline in transaction volume this year is largely due to loan regulations and interest rate hikes that began in earnest in the second half of last year. With housing prices reaching record highs and strong loan regulations in place, the increase in the Bank of Korea’s base interest rate has increased interest burdens, sharply reducing the purchasing power of housing demanders.

On the other hand, foreigners are relatively free from the effects of loan regulations and interest rate hikes. It is known that foreigners investing in domestic real estate often raise capital through global major banks in their home countries or third countries. Since domestic buyers have no choice but to mainly use domestic banks, strong loan regulations raise concerns about reverse discrimination. In terms of taxation, such as acquisition tax surcharges, foreigners are also in a blind spot. Under current law, if one household acquires two or more houses, an acquisition tax rate of 8.0?12.0% is applied with surcharges. The identification of foreign households is done through the Registered Foreigner Record or Foreigner Registration Card, but omissions often occur due to family members residing abroad. It is often difficult to identify household members, leading to frequent omissions in the aggregation of the number of houses, making acquisition tax and capital gains tax surcharges practically impossible. The Korea Local Tax Research Institute also urged in April that “the multi-home acquisition tax surcharge system raises concerns of reverse discrimination against domestic buyers” and called for strengthening the tax infrastructure.

The government plans to review the actual status of foreign real estate ownership and establish related systems, albeit belatedly. The Ministry of Land, Infrastructure and Transport has decided to promote a plan to designate transaction permission zones to regulate foreigners’ land and housing transactions if foreign real estate speculation is a concern, with provincial governors and others involved. There is also a proposal to mandate the submission of a funding plan when foreigners not residing in Korea acquire domestic housing. Furthermore, in cases where it is difficult to identify household members, the Ministry of the Interior and Safety, National Tax Service, and Ministry of Economy and Finance will review how to identify and respond to real estate transactions conducted by family units.