[Column] Aftermath of Osso Gong and Toheoje

The future value of the Gangnam 3 districts and Yongsan-gu is well known to everyone. The perception of Seoul Mayor Oh Se-hoon, who lives in the Hannam-dong official residence, is likely not much different. Minister of Land, Infrastructure and Transport Park Sang-woo also said, "The demand from groups wanting to move to popular areas like the Gangnam 3 districts is very strong." As a result, the preference for owning a single, well-located property is becoming increasingly solid. This is the background behind the story that "Seoul City pointed out the areas that would rise" when it lifted the land transaction permit zones in Jamsil, Samsung, Daechi, and Cheongdam-dong areas in mid-last month.

Within a month after the lifting, gap investments surged rapidly. Once gap investments were allowed again, many people started buying apartments with jeonse (long-term lease deposits). Last month, the number of apartment transactions in Seoul reached 5,620 (as of the 20th), marking the highest in six months. However, until last month, Seoul City denied the reality by saying "there has been no confirmation of a rapid price increase," but changed its stance this month. Thirty-five days after the lifting, Seoul City designated a wider area as a land transaction permit zone again.

The aftermath of the lifting was already detectable. The lifting of the land transaction permit zone was first mentioned officially two months ago. At the ‘Discussion on Easing Regulations to Revive Livelihood’ held on January 14, various deregulation measures were proposed, but the ‘lifting of the land transaction permit zone’ dominated all issues. The Seoul City Hall department was flooded with calls asking "which areas will be lifted." From that point, the real estate market was already reacting. Given the scale of the impact, aftershocks following the lifting could have been anticipated.

At a briefing the day before, a Seoul City official explained the situation at the time of the lifting: "Since the second half of last year, transaction volumes sharply declined, and prices remained stable. Various situations, including bankruptcies of small and medium-sized (construction) companies, occurred simultaneously." He added, "From the beginning of the year, the focus was on revitalizing the economy through deregulation, and considering the overall real estate situation, it was judged that prices would not rise excessively and could be managed." However, even in the stable situation he described, the Gangnam 3 districts were setting new record prices. Moreover, constants that could raise housing prices were lined up, such as the preference for owning a single, well-located property and the shortage of housing supply in Seoul for the next 2-3 years. The variable was Mayor Oh’s political position as he faced an early presidential election.

Since Mayor Oh has consistently argued over the past few years that Seoul’s real estate prices should be ‘downwardly stabilized’ and maintained a cautious stance, the lifting of the land transaction permit zone could only be interpreted more politically. The deregulation efforts of Mayor Oh, who emphasized his rich administrative experience as a strength, left a blemish known as ‘Ossogong’ (the projectile fired by Oh Se-hoon).

With only four days left before the implementation of the land transaction permit zone designation, Seoul’s real estate market fell into confusion. A balloon effect, where investment demand shifts to neighboring areas, and ‘height matching’ where price differences between regions narrow, seem inevitable. The jeonse and monthly rent prices in the four districts designated under the land transaction permit zone are likely to rise more steeply. It will become even more difficult for non-homeowners and low-income residents to secure a home in Seoul.

Minister Park Sang-woo compared the six-month designation of the land transaction permit zone to a ‘medicine used in urgent situations.’ The land transaction permit zone cannot solve the current problems of the real estate market. A real estate expert said, "The market has always beaten regulations. The land transaction permit zone has now become the default option." The market quickly adapts to regulations. The same happened with loan regulations. Ultimately, the only measure to control prices is supply, but supply measures also seem distant. It is time to devise sophisticated alternatives to prevent the emergence of a second or third ‘Ossogong.’