Despite Large-Scale Deregulation of Restricted Areas... Insufficient to Resolve Transaction Freeze

Tax Burden Will Decrease but Reversal Remains Difficult
Concerns Over Further High-Interest Rate Decline Persist

[Image source=Yonhap News]

[Asia Economy Reporters Minyoung Kim and Kyungjo Roh] The government has decided to lift regulations on all areas except the three Gangnam districts of Seoul (Gangnam, Seocho, and Songpa) and Yongsan District. This move is interpreted as a measure to prevent a market hard landing amid a deepening transaction freeze caused by relentless housing price declines and sharp interest rate hikes. However, with the high-interest-rate environment continuing and ongoing concerns about further housing price drops, it is expected to be difficult for buying demand to revive.

According to government officials on the 3rd, the Ministry of Land, Infrastructure and Transport will hold a Residential Policy Deliberation Committee meeting this month to lift regulations on additional areas. Considering that less than two months have passed since regulations were lifted on all areas except Seoul and four regions in Gyeonggi Province on November 10 last year, this indicates how severe the current housing market downturn is. As the prolonged interest rate hikes deepen the housing market slump and increase the risk of it spilling over into the real economy, this is seen as a measure to guide a soft landing in the real estate market.

Since the government began lifting regulation areas in June last year, all 25 districts of Seoul and areas in Gyeonggi such as Gwacheon, Seongnam (Bundang and Sujeong districts), Hanam, and Gwangmyeong remain designated as speculative overheated zones and adjusted target areas. Among these, the Gangnam 3 districts, which have solid demand despite the transaction cooling period, and Yongsan District, which benefits from the development of the Yongsan International Business District, are excluded from the deregulation targets. It is known that all other areas are highly likely to be deregulated. Once deregulated, multi-homeowners will no longer face heavy taxation such as comprehensive real estate tax and capital gains tax, and loan limits such as the Loan-to-Value ratio (LTV) will be expanded. The resale restriction period for housing pre-sale rights will be reduced from a maximum of 5 years to 3 years, and the re-application restriction period for subscription will be shortened from 10 years to 7 years. This means that the tax burden and other costs involved in buying and selling homes will be lowered.

Experts predict that while these measures may slightly increase transactions, it will be difficult to reverse the market sentiment. This is because loan interest rates remain high, and many potential buyers hesitate to act, fearing that housing prices may fall further.

Kim Hyoseon, Senior Research Fellow of Real Estate at NH Nonghyup Bank, said, "Deregulation may lead to a slight increase in transactions and concentrated demand in some areas," but added, "Housing sentiment is severely depressed and high interest rates persist, so the impact is limited to the extent that the market can rebound."

Kim Seonghwan, Associate Research Fellow at the Korea Research Institute for Construction Industry, also said, "It will prevent downward pressure on real estate prices, but it is difficult to shift to upward momentum," explaining, "Because the financial burden of purchasing a home has not been resolved." He added, "If regulations on the Gangnam 3 districts are lifted, the story would be different, but the government is unlikely to go that far," and "Due to the base effect from last year's price decline, normal transaction flows may briefly appear."

Seo Jinhyung, head of the Fair Housing Forum and professor of MD Product Planning Business at Gyeongin Women's University, said, "Sellers think the bottom is being formed, while buyers believe prices may fall further, widening the gap between desired buying and selling prices," adding, "It is difficult to expect an immediate increase in listings or transaction activation."