Two Months of LTPZ: Transactions Plummet,
But Record-High Prices Continue in Reconstruction Complexes
"Regulations Will Be Eased Regardless of Who Wins"
Expectations for Eased Reconstruction Rules
Drive Investment Toward Gangnam
Outlook: Strong First Half, Weaker Second Half
Wait-and-See Attitude and Concerns Over High Prices
May Slow the Pace of Increases
In the two months following the re-designation of the Land Transaction Permission Zone (LTPZ), the transaction volume in the three Gangnam districts (Gangnam, Seocho, Songpa) and Yongsan district plummeted to one-tenth of previous levels. However, record-high prices are continuously being reported, especially in reconstruction complexes. Analysts say that rather than curbing demand, the regulation has acted as a barrier to entry, further highlighting the scarcity of high-end locations. With a consensus forming that "regardless of who becomes president, reconstruction regulations will be eased," the market's attention is now focused on the direction of tax and supply policies after the presidential election. However, at the first presidential candidate debate held on the 18th, no pledges related to the real estate market were presented.
Two Months of LTPZ: "Transactions Have Decreased"
According to the Ministry of Land, Infrastructure and Transport's actual transaction price system, from March 24, when Seoul expanded and re-designated the LTPZ, to May 18, the total number of reported apartment sales in Seoul was 7,582. Of these, transactions in the three Gangnam districts and Yongsan district accounted for only 357, or 4.7% of the total. During the 39 days from February 13 to March 23, when the LTPZ was lifted, 4,000 transactions occurred in these same areas, representing 30.5% of the total 13,132 transactions in Seoul at that time.
Typically, when transaction volume drops so sharply, housing prices tend to weaken. However, Seoul apartment prices have risen for 15 consecutive weeks. In particular, record-high prices are being set in Gangnam reconstruction complexes subject to the LTPZ. For example, Hanyang 1st Complex in Apgujeong-dong (exclusive area 78㎡, 9th floor) was sold for 6 billion won on April 12, which is 1.25 billion won higher than the previous record (for the same area and floor). Hyundai 8th Complex, 111㎡ (2nd floor), was contracted for 5.65 billion won on April 28, and 163㎡ (7th floor) was contracted for 7.5 billion won on April 26. These are new record highs, up 1.35 billion won and 1.05 billion won, respectively, from the previous transactions. Shinhyundai 11th Complex (183㎡, 6th floor) was sold for 9.95 billion won at the end of April, up 750 million won from the previous transaction.
"Regulations Will Be Eased Regardless of Who Wins"
Experts cite "housing supply shortages" and "expectations for presidential candidates' pledges to ease reconstruction regulations" as the reasons for rising housing prices.
Yoon Jihae, head of the PropTech Research Lab at Real Estate R114, said, "It is difficult to secure new residential land in Seoul, so apart from reconstruction, there are no effective supply measures." She added, "Even the Democratic Party has mentioned easing regulations, such as increasing floor area ratios, and these expectations are being reflected in prices." She further explained, "There is also a growing trend of wealthy individuals with multiple properties in other regions switching to a single high-priced home in Seoul to avoid heavy taxation."
Ko Jongwan, director of the Korea Asset Management Institute, analyzed, "Regardless of who is elected, easing of reconstruction regulations is being taken as a given. As a result, there is a growing concentration of investment in Gangnam reconstruction apartments with promising investment value, leading to deepening polarization." Park Wongap, senior real estate expert at KB Kookmin Bank, stated, "Compared to new constructions, the relatively lower prices combined with expectations for regulatory easing have revived investment sentiment toward reconstruction as an investment product."
Some analyses suggest that the LTPZ is fueling preferences for high-end locations and expectations for price increases. Yoon noted, "Although the original purpose was to curb speculation, it has instead highlighted the 'scarcity value.' The higher the entry barriers, the greater the symbolic status of these prime areas." Ham Youngjin, head of the Real Estate Research Lab at Woori Bank, diagnosed, "Most of the areas setting new record prices are within the LTPZ. With limited supply and abundant waiting demand, sellers are reluctant to lower their asking prices." Ko explained, "Due to the balloon effect of regulation, the price increases are spreading to adjacent areas such as Dongdaemun and Gangdong districts."
On March 30, a week after the government and Seoul city designated all apartments in the Gangnam 3 districts and Yongsan district as land transaction permission zones, a real estate agency in Jamsil, Songpa district, Seoul displayed a notice for 'property listings'. Photo by Yonhap News
Outlook: Strong First Half, Weaker Second Half
Experts predict that, for the time being, localized upward trends will continue, especially in key areas of Seoul. Kim Eunsun, head of the Big Data Lab at Zigbang, said, "Demand has not disappeared; it is merely on hold. After the implementation of the third stage of the Debt Service Ratio (DSR) regulation in July, selective purchases by buyers with sufficient financial capacity may lead to continued price increases in certain areas." Ham forecasted, "The upward trend is expected to continue, especially in reconstruction-anticipated complexes in Gangnam and Mokdong. However, until the new government's real estate policies are clarified, the market may see a wait-and-see approach and concerns about high prices, which could slow the rate of increase."
Ko diagnosed, "After peaking in October 2021, real estate prices have generally declined nationwide. The real estate market typically goes through a correction period of four to five years after rising for five to six years, and we are now entering the end of the downward cycle." He added, "Just as the stock market is linked to the New York Stock Exchange, real estate also shows a global synchronization trend. Unless there is a sharp drop in real estate prices in major overseas countries such as Japan, it is unlikely that only Korea's market will continue to fall."
There are also assessments that the upward trend may slow in the second half of this year compared to the first half. Park stated, "When the third stage of the DSR takes effect in July, the 'pre-consumption demand' to buy before tighter loan regulations may subside. Since housing prices have risen excessively compared to other assets, short-term fatigue and weakened appeal relative to alternative investments may lead to a 'strong first half, mild second half' pattern."
Yoon emphasized, "The key to the market outlook lies in tax reform." He explained, "During the Moon Jae-in administration, the heavy taxation on multiple home ownership was not amended for three years under the current government, making Seoul the biggest beneficiary of polarization. The market's direction will depend on how the next government sets its tax policy."
External factors mentioned include changes in money supply and the relocation of public institutions to regional areas. Park said, "If the growth of broad money supply (M2) slows, the amount of money circulating in the market will decrease, leading to price declines starting from high-priced homes. In this case, regional price gaps may narrow, but if financing conditions worsen for end-users relying on loans, only buyers with ample funds will remain, and they will concentrate investments in popular areas such as Seoul with clear future value, further deepening polarization." He added, "The relocation of public institutions to regional areas, as proposed in presidential campaign pledges, could also affect the housing market in the capital region. As seen during the 2012 relocations, there could be an outflow of demand."
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