[2022 Real Estate] Comprehensive Deregulation... Can It Prevent Housing Price Collapse?

Easing Multi-Homeowner Regulations to Stimulate Transactions
Removal of Restrictions in Seoul Metropolitan Area and Relaxation of Safety Inspection Standards
Limited Impact Expected Due to Real Estate Slump

Apartment viewed from Namsan, Seoul [Image source=Yonhap News]

[Asia Economy Reporter Onyu Lim] The Yoon Suk-yeol administration has launched comprehensive regulatory easing measures to prevent the real estate market from a "wingless free fall." While significantly relaxing tax and loan regulations on multi-homeowners, who were treated as "speculators" during the Moon Jae-in administration, the government has also lifted many regulatory zones in the metropolitan area, including Gyeonggi and Incheon. However, experts predict that such changes will have limited impact on market stabilization during the stagnation period caused by high interest rates suppressing housing prices.

◆ Punitive taxation on multi-homeowners abolished, loan limits raised = First, the acquisition tax surcharge rates applied to multi-homeowners will be significantly reduced. Two-homeowners will be subject to the general tax rate of 1-3% regardless of regulatory zones; for three-homeowners, the current 8% rate will be lowered to 4%, and for those owning four or more homes, the rate will drop from 12% to 6%. The exclusion of capital gains tax surcharges on multi-homeowners, which was scheduled to expire next year, has been extended by one year until May 9, 2024. The comprehensive real estate tax surcharge on two-homeowners will also be eliminated. Even two-homeowners in adjusted areas can pay taxes at the general rate (0.5-2.7%). Loan regulations will also be significantly eased. Going forward, multi-homeowners will be able to obtain mortgage loans within a 30% loan-to-value (LTV) limit even in regulated areas.

◆ Most metropolitan regulatory zones lifted... some parts of Seoul likely to be eased = The government has lifted many regulatory zones in both local and metropolitan areas. Currently, only four areas in Gyeonggi?Seoul, Gwacheon, Seongnam (Bundang and Sujeong districts), Hanam, and Gwangmyeong?remain as regulatory zones. Once out of regulatory zones, barriers related to loans, taxes, and resale restrictions are lowered. The government plans to lift some remaining regulatory zones in January next year. Gwangmyeong and Hanam, where housing prices have dropped significantly, as well as Seoul’s Nowon and Dobong districts, are likely candidates.

◆ Removing three major obstacles blocking reconstruction to promote revitalization = Three major regulatory obstacles blocking reconstruction projects will be removed. Complexes subject to the price ceiling system will be allowed to raise prices by up to 4%, and the threshold for exemption from reconstruction levies has been raised to 100 million KRW. Additionally, the weight of structural safety in safety inspection evaluations will be lowered from 50% to 30%, and secondary detailed safety inspections will be conducted restrictively. This means that even if a structure is safe, reconstruction can proceed if residents experience significant inconvenience in daily life.

Furthermore, the transfer tax rate on pre-sale rights, which was as high as 70%, will be reduced, the residency requirement for non-priority subscription will be abolished, and the lottery system for small and medium-sized units in speculative overheated districts will be reinstated. However, the government plans to maintain regulations on the debt service ratio (DSR), which could trigger household debt risks.

◆ Will regulatory easing revive the market? Concerns over insufficiency = Experts believe that despite the government's large-scale regulatory easing, it will be insufficient to revive the real estate market weakened by the high interest rate era. Park Won-gap, senior real estate specialist at KB Kookmin Bank, said, "Since the interest rate hike rally continues, housing prices are unlikely to respond sensitively to the government's regulatory easing." Nevertheless, some view the government's policy shift toward normalizing the real estate market as necessary. Lee Eun-hyung, research fellow at the Korea Institute of Construction Policy, explained, "If housing prices were highly sensitive to policies, Yoon President’s election pledge to ease real estate regulations might not have been easily realized. By easing regulations now and changing the market environment, a foundation can be laid for smooth housing supply when the real estate market transitions in the future."