[Real Estate AtoZ] Extension of Gangnam Land Transaction Permit... "Jeonse Prices Will Rise Further"

Jamsil, Samsung, Daechi, Cheongdam Land Transaction Permission Zone Extended for 1 Year
"Rent Prices Higher Than Adjacent Areas Due to Permission Zone Designation"
Seoul City: "Insufficient Data Yet on Rent Increase Within Permission Zone"

Seoul City re-designated Samseong, Cheongdam, and Daechi-dong in Gangnam-gu and Jamsil-dong in Songpa-gu as land transaction permission zones on the 13th, raising concerns about a contraction in the supply of jeonse (long-term lease) in these areas. When purchasing a house in a land transaction permission zone, the buyer must reside there for two years. This means that new buyers cannot rent out the house as jeonse, which could lead to a decrease in jeonse supply, according to analyses.

Two-Year Residency Obligation When Buying Housing in Land Transaction Permission Zones

A land transaction permission zone is an area where transactions of housing, commercial buildings, land, etc., above a certain scale are restricted. According to the "Real Estate Transaction Reporting Act," the Minister of Land, Infrastructure and Transport or the head of the local government can set the period for up to five years. If the area to be designated spans more than one city, the Minister of Land, Infrastructure and Transport designates it; if it is part of a city, the local government head designates it. If there is concern about rampant speculation due to national development projects, the Minister of Land, Infrastructure and Transport can designate even part of a city as a land transaction permission zone.

This system was first introduced in 1979 to stabilize the real estate market. To trade housing or land in this zone, permission from the local government head is required. Transactions are allowed if the purpose is for actual residence or to build welfare facilities for residents.

According to the Seoul Real Estate Information Plaza, as of April, the total area of land transaction permission zones is 56.42㎢. The city designated Jamsil, Cheongdam, Daechi, and Samseong-dong as land transaction permission zones in June 2020, and added Apgujeong, Mok-dong, Yeouido, and Seongsu-dong in April 2021.

Jeonse Supply Decreases and Jeonse Prices Rise in Permission Zones

Gap investment is blocked when an area is designated as a permission zone due to the two-year residency obligation. Yoo Samsul, Director of the Land Policy Division at the Ministry of Land, Infrastructure and Transport, said, "In land transaction permission zones, the land purchased must be used according to its intended purpose," adding, "Residential buildings such as apartments in these zones are subject to residential use obligations."

This has raised concerns that jeonse supply within permission zones is shrinking. Because gap investment in apartments is not possible due to the residency obligation, transactions decrease. Consequently, the number of jeonse listings declines and jeonse prices rise.

According to research by Professor Lee Chang-moo of Hanyang University's Department of Urban Engineering, apartment jeonse prices in Samseong, Cheongdam, and Daechi-dong were 1.8% higher from 2022 to 2023 compared to nearby Nonhyeon, Dogok, and Yeoksam-dong. Even when comparing jeonse prices since the designation as permission zones in 2020, there was about a 1.5% difference. From last year until last month, this gap widened to 2.6%.

Apartment complex in Yeouido, Seoul.
Photo by Yonhap News

Professor Lee said, "The designation of land transaction permission zones has led to a contraction in jeonse supply in these areas, making the market more unstable," adding, "We conducted similar analyses on monthly rent, and in some cases, apartment monthly rents within permission zones rose up to 5% more than in neighboring areas. Considering the comparison with adjacent neighborhoods, this is a significant gap that cannot be ignored."

Seoul City: Difficult to Conclude That Designation Causes Jeonse Price Increase

Meanwhile, the designation period for land transaction permission zones in Samseong, Cheongdam, Daechi, and Jamsil-dong is from the 23rd of this month until June 22 of next year. Seoul City stated the reason for the designation as "Seoul housing prices are recovering mainly in apartments, with a notable recovery in the three Gangnam districts (Gangnam, Seocho, Songpa)." The city believes that lifting regulations would cause prices to rise further.

Earlier, on the 5th, the Seoul City Urban Planning Committee, which reviews permission zone designations, postponed the decision. A Seoul City official said, "During the committee's review process for re-designating the zones, there were some opposing opinions," adding, "Some committee members stated that 're-designating the zones would reduce jeonse supply due to the residency obligation, causing jeonse prices to rise.'"

However, the official added, "It is difficult to judge the rise in jeonse prices due to the designation of permission zones because clear statistics or research are still lacking," and "Due to insufficient data, concerns about jeonse price increases following the designation of land transaction permission zones could not be reflected."