One Month Since Expiration of Land Transaction Permission System in Apgujeong and Yeouido... Seoul City Likely to Extend

Gangnam, Yangcheon, Songpa "House Prices Plunge... Request Deregulation"
Recent House Price Recovery and Hangang Renaissance Boost
Seoul City Faces Deregulation Burden... Extension Likely

The expiration date for the designation of land transaction permission zones in major reconstruction complexes such as ‘Ap-Yeomokseong (Apgujeong, Yeouido, Mokdong, Seongsu)’ is just one month away. Gangnam, Yangcheon, and Songpa districts are requesting the Seoul Metropolitan Government to lift the designation, citing a sharp decline in transaction volume and transaction prices, rendering the designation ineffective. Seoul faces a dilemma. Although the risk of speculative forces disrupting the market has decreased due to the real estate downturn, recent reductions in the rate of house price declines and significant development projects such as ‘Hangang Renaissance 2.0’ make lifting the designation a burden. There is also a sense internally that the balance is tipping toward extending the designation period.

Seoul Yangcheon-gu Mokdong Complex 7 Overview [Image Source=Yonhap News]

Gangnam, Yangcheon, Songpa "Please lift the land transaction permission zone designation"

Recently, following Gangnam and Yangcheon districts, Songpa district also requested the city to lift the land transaction permission zone designation for major reconstruction complexes. The land transaction permission zone is a system requiring approval from the mayor or district head when trading land above a certain area to prevent real estate speculation. Transactions are allowed only for actual residence purposes, making gap investments involving jeonse (long-term deposit rentals) impossible.

The area Gangnam district wants to lift the designation from is the Apgujeong-dong apartment district, covering 1,149,476㎡. Yangcheon district’s area is 2,282,130㎡ in Mokdong and Sinjeong-dong, consisting of New Town Apartments complexes 1 to 14. All are reconstruction promotion areas, designated as land transaction permission zones on April 27, 2021, after reconstruction apartments stimulated Seoul’s housing prices. The designation period was extended once and is set to expire on the 26th of this month. Songpa district submitted a lifting request for the Jamsil-dong area covering 5,200,000㎡, which is the target site for the International Exchange Complex District project. It was designated as a land transaction permission zone from June 23, 2020, to suppress speculative demand. Since the initial designation, it has been extended twice, and the decision on re-designation will be made in June.

"House prices have fallen, making it ineffective... Property rights infringed by overlapping regulations"

The core reason Gangnam, Yangcheon, and Songpa districts request lifting the designation is ‘ineffectiveness.’ According to Article 10 of the Act on Reporting and Inspection of Real Estate Transactions, land transaction permission zones target areas where speculative land transactions are rampant or where land prices are rapidly rising or expected to rise sharply. However, currently, due to the real estate downturn, transaction volumes have decreased and house prices have fallen, so these conditions no longer apply. Additionally, the infringement of private property rights due to overlapping regulations is another reason for the lifting request. Previously, the government lifted most regulatory areas through the 1.3 measures, but kept the Gangnam 3 districts (Gangnam, Seocho, Songpa) and Yongsan district unchanged.

According to statistics from the Korea Real Estate Board, real estate transaction volume in Apgujeong-dong plummeted to about 10% of the level before the designation. Transaction prices also dropped by more than 500 million KRW from the peak price. Similarly, transaction volume in Mokdong New Town Apartments fell to about 12%, and prices dropped by up to 660 million KRW. According to the apartment price (draft) as of January 1, the price of complexes in Jamsil-dong (based on 84㎡ exclusive area) fell about 30% compared to the previous year.

Seoul Mayor Oh Se-hoon [Image source=Yonhap News]

Seoul faces a dilemma: Could lifting the designation stimulate house prices?

The decision on whether to lift the land transaction permission zone designation will be made by the Seoul City Urban Planning Committee. To extend the designation for major reconstruction complexes by one more year, the related agenda must be submitted and reviewed at the Urban Planning Committee meeting by mid-next month. If not submitted, the designation will automatically expire.

The city officially stated, "We plan to review whether to re-designate or lift the designation at the time of expiration," but it appears there is deep internal deliberation. Although there are no signs of market overheating, recent house prices have shown signs of recovery. According to the Korea Real Estate Board, Seoul apartment sale prices fell by 0.15% in the third week of March, a slight decrease in the rate of decline compared to the previous week (-0.16%). The rate of decline has been decreasing for seven consecutive weeks since the first week of last month (surveyed on the 6th).

Moreover, with major development projects such as Hangang Renaissance 2.0 gaining momentum, there is a risk that the real estate market could become unstable. Therefore, Seoul finds it difficult to lift the land transaction permission zone designation, which is the only tool to control the market.

Mayor Oh Se-hoon also has a strong will to stabilize the real estate market, and internally, the atmosphere is leaning toward maintaining the status quo. Earlier, at a New Year press conference in January, Mayor Oh stated, "I believe the lower the house prices, the better," and added, "It is desirable to return to the early days of the Moon Jae-in administration."