[Practical Finance] Eased but Unfinished Housing Regulations... Must Check Acquisition Tax Surcharge and Actual Residence Obligation

Implementation of Partial Amendment to Housing Supply Act
One-Homeowners Winning Subscription
No Need to Dispose of Existing Home
Non-Sequential Subscription, No Regional Restrictions

#Recently, the ‘Olympic Park Foreon’ in Gangdong-gu, Seoul (Dunchon Jugong Reconstruction) recorded a competition rate of 46.2 to 1 in its non-ranking subscription. A total of 41,540 people flocked to apply for 899 units with exclusive areas ranging from 29 to 49㎡. It is analyzed that the lowered threshold allowing multi-homeowners, who had been excluded from the subscription market for a while, to participate in so-called ‘jupjup’ regardless of whether they reside in the area was effective.

With successive deregulations, the Seoul subscription market has recently recorded double-digit competition rates, signaling the end of the cold spell. The effect is also linked to the spring peak season. The government is easing real estate regulations to induce a soft landing of the market. Following the launch of a special fixed-rate housing loan at a minimum annual rate of 3.25% in January, the obligation for winners of subscriptions to dispose of their existing homes was abolished starting in March. Additionally, multi-homeowners from other regions were allowed to participate in non-ranking subscriptions. However, several bills such as the retrospective easing of acquisition tax surcharges and the abolition of the residence obligation, which were planned for the end of last year, have yet to pass the National Assembly and face a long road ahead. Those planning to purchase a home need to carefully understand what has changed and what has not in real estate policies.

◇Wings for 1-homeowners who win subscriptions and non-ranking subscriptions= According to the ‘Partial Amendment to the Housing Supply Rules’ promulgated and enforced by the Ministry of Land, Infrastructure and Transport on the 1st, 1-homeowners who win a subscription no longer need to dispose of their existing home. The same applies to 1-homeowners who won under the previous condition of disposal.

Before the enforcement of the amendment, 1-homeowners had to dispose of ownership of their existing home within two years from the move-in date after winning a new apartment subscription. Those who did not pledge disposal were assigned a lower priority in the winning order.

The conditions for non-ranking subscriptions have also been greatly relaxed. Non-ranking subscriptions refer to subscriptions that recruit additional residents by collecting units that were undersubscribed or canceled due to winners’ withdrawal in the main subscription. Previously, only those residing in the area where the housing was being constructed and whose entire household members were non-homeowners could apply for non-ranking subscriptions. Now, any adult residing in Korea can apply for non-ranking subscriptions regardless of region or number of homes owned. However, public housing is limited to non-homeowner household members.

The special supply criteria for speculative overheated districts, which were only available for housing priced below 900 million KRW, have also been abolished. Accordingly, housing priced above 900 million KRW nationwide can now be allocated as special supply units for multi-child families, households supporting elderly parents, newlyweds, and first-time homebuyers.

From a financial perspective, the Financial Services Commission has eased regulations from the 2nd of this month, allowing multi-homeowners in regulated areas such as the three Gangnam districts (Seocho, Gangnam, Songpa) and Yongsan-gu to obtain mortgage loans. The limit is up to 30% of the Loan-to-Value ratio (LTV). Housing rental and sales businesses are subject to an LTV of 30% in regulated areas and 60% in non-regulated areas.

◇Attention to easing of acquisition tax surcharges for multi-homeowners= However, some of the deregulation measures announced in the Ministry of Land’s 1.3 real estate measures have not yet been implemented, causing confusion in the market. These include easing of resale restrictions, abolition of residence obligations, and easing of acquisition tax surcharges for multi-homeowners.

Among these, the reduction of the resale restriction period is expected to be implemented by the end of March after the related enforcement ordinance’s legislative notice period ends. The maximum resale restriction period of 10 years in Seoul and the metropolitan area will be eased to 3 years for public land and regulated areas, 1 year for densely controlled zones, and 6 months for other areas. In non-metropolitan areas, it will be 1 year for public land and regulated areas, 6 months for metropolitan cities (urban areas), and completely abolished for other areas. For example, the resale restriction for Olympic Park Foreon will be reduced from 8 years to 1 year.

The problem lies with the remaining regulations. These require legal amendments but have not been properly discussed in the National Assembly. Concerns are rising that this only fuels subscription competition without removing uncertainties.

The biggest concern for multi-homeowners who jumped into the Olympic Park Foreon non-ranking subscription is likely the easing of acquisition tax surcharges. The government announced on December 21 last year that punitive acquisition taxes would be eased for housing acquisitions from that date. However, strong opposition from opposition parties and the ruling party’s leadership election have delayed the bill’s passage. The abolition of the residence obligation is in the same situation. If the Housing Act is amended and applied retroactively, residents would not need to live in Olympic Park Foreon, but the situation remains uncertain.

Kim Gyu-jung, head of the Asset Succession Research Institute at Korea Investment & Securities, said, “The government has announced since last year that it would apply these policies, and many people probably believed the policies would be implemented and jumped into subscriptions. Although there has been no discussion in the National Assembly yet, I think there is a high possibility the bill will pass based on precedent.” He added, “If it fails, the government should present alternatives together.”