No Major Concerns for Jeonse, Says Land Ministry... "Seeking Solutions" for Monthly Rent Burden: Q&A [Real Estate AtoZ]

[10.15 Measures]
Seoul Entirely Designated as Land Transaction Permit Zone
"Inevitable to Prevent Spillover Effect"
Ministry of Land Responds to Seoul's Objection:
"All Official Procedures Were Followed"
Prime Minister's Office Discusses Investigative Authority
Crackdown on Illegal Transactions to Intensify

Kim Yoonduk, Minister of Land, Infrastructure and Transport, attended the joint briefing on housing market stabilization measures held at the Government Seoul Office in Jongno, Seoul, on the 15th, and announced real estate measures. The announcement was attended by Koo Yoonchul, Deputy Prime Minister and Minister of Strategy and Finance, Lee Okwon, Chairman of the Financial Services Commission, Yoon Changryul, Director of the Office for Government Policy Coordination, and Lim Kwanghyung, Commissioner of the National Tax Service. Photo by Jo Yongjun

The core of the housing market stabilization measures announced by the government on October 15 is to designate all areas of Seoul and certain parts of Gyeonggi Province as regulated zones, and to gradually reduce the loan limits for high-priced homes valued at 1.5 billion won or more, directly targeting speculative demand. Kim Gyucheol, Director of the Housing and Land Division at the Ministry of Land, Infrastructure and Transport, held a briefing at the Government Sejong Complex that day, stating, "If only parts of Seoul were designated, there would be a high risk of price increases spreading to areas not subject to regulation, making it inevitable to designate all 25 districts. If the upward trend in home prices continues to spread, we will consider additional designations." He also noted that the likelihood of a worsening rental shortage due to strengthened requirements for actual residence is low, but added that it is necessary to consider tax benefits such as deductions for monthly rent in response to the trend of rental contracts shifting from lump-sum deposits to monthly payments.

A key feature of these measures is the segmentation of mortgage loan limits by home price, and the inclusion of rental loans under the total debt service ratio (DSR) regulation, significantly reducing the purchasing power through borrowing. For homes priced at 1.5 billion won or less, the loan limit remains at 600 million won as before; for homes between 1.5 billion and 2.5 billion won, the limit is 400 million won; and for homes over 2.5 billion won, the limit is 200 million won. In addition, with all of Seoul designated as a land transaction permit zone, so-called 'gap investment'-purchasing homes with tenants in place-has become virtually impossible. Director Kim acknowledged, "It is true that some restrictions on loans for genuine buyers will occur," and stated, "We will continuously monitor market conditions and consider supplementary measures if necessary." Although tax reforms were not included, the government decided to launch a task force among relevant ministries at an early stage to rationalize property holding and transaction taxes.

Addressing the controversy over designating regulated areas without prior consultation with the Seoul Metropolitan Government, the ministry countered, "All official procedures were followed." The authority to designate and lift land transaction permit zones lies with the same institution. Areas designated this time by the Ministry of Land, Infrastructure and Transport can only be lifted by the ministry. For areas previously designated by the Seoul Metropolitan Government (the three Gangnam districts and Yongsan District), the authority to lift the designation remains with the city.

The new real estate supervisory body under the Prime Minister's Office, to be established next year, is being discussed as having direct investigative authority if necessary. Experts believe that while these measures will inevitably lead to a short-term freeze in transactions and price adjustments, abundant market liquidity and expectations of interest rate cuts could act as variables, so it remains to be seen whether they will lead to long-term market stabilization.

The following is a Q&A with Director Kim of the Housing and Land Division.

- There are concerns about a spillover effect in nearby areas of Gyeonggi Province.

▲ We considered this issue carefully. The decision to designate all 25 districts of Seoul was made after much deliberation, as such regulation can inconvenience the exercise of property rights. We explored various alternatives to maximize effectiveness while minimizing the scope. In Seoul, the price increase that began with high-priced homes has continued to spread, and now the Han River Belt area is seeing significant rises, with the trend expanding both north and south. We determined that if only some areas were designated, the upward trend in home prices could easily spread to the remaining areas, so we decided to designate all of Seoul. In Gyeonggi Province, we included areas around Gangnam where prices have risen significantly, as well as neighboring areas experiencing notable increases. However, we felt it would be excessive to designate the entire province, so we limited it to 12 areas. If further spread is observed in the future, we will keep the option of additional designations open for consideration.

- There are concerns that applying the 1.5 billion won loan limit could increase the burden on genuine buyers in northern Seoul and widen the asset gap.

▲ The core of these measures is to curb loans for high-priced homes. For homes under 1.5 billion won, loan limits remain at previous levels, but for those above 1.5 billion won, limits have been gradually reduced by price segment. If a single threshold were set, it could distort prices downward to just below 1.5 billion won, so we introduced stepwise regulations at 1.5 billion, 2.5 billion, and above 2.5 billion won. By reducing loan amounts in stages, we have implemented strong regulations on high-priced properties.

- Won't transactions cluster around the 1.5 billion won mark, or sellers try to lower prices to avoid regulation?

▲ The financial authorities have taken this into account. If a single threshold were set, transactions could cluster at 1.5 billion won, so we divided the limits into segments at 1.5 billion, 2.5 billion, and above 2.5 billion won. This measure is intended to prevent concentration at a specific price range.

- The Seoul Metropolitan Government claims it was only "unilaterally notified" about the designation of regulated areas.

▲ When designating regulated or adjustment-targeted areas, we are legally required to go through an official consultation process with local governments. We request opinions via official documents, review the responses, and then notify the designation results. All procedures were followed in this case as well. While we understand the concerns of the Seoul Metropolitan Government, we judged that the designation was unavoidable for the greater goal of housing stability. For land transaction permit zones, there is no legal obligation to consult, but both Seoul and Gyeonggi were notified in advance. Seoul agreed with the expansion of regulated areas but expressed concerns about some land permit zones. However, they did not officially express opposition or declare any areas as "undesignatable."

- Won't stricter actual residence requirements reduce the supply of rental properties and burden the lease market?

▲ We believe the likelihood is low. When a home is newly purchased for actual residence, the previous residence typically becomes available on the market, so the overall supply does not change significantly. The rental market has not seen increases as sharp as the sales market, but we are monitoring it closely. However, as the trend of converting lump-sum rental deposits to monthly rent continues, we believe it is necessary to consider tax benefits such as monthly rent deductions to ease the burden of rising monthly rents.

- Which complexes were specifically excluded from this designation?

▲ Previously, when the three Gangnam districts and Yongsan District were designated, some buildings within complexes like Hannam The Hill were classified as "multi-family housing" in official records and thus excluded from regulation, creating regulatory disparities. In reality, these properties are used and traded like apartments, but were treated differently due to administrative classifications. This time, to address such fairness issues, we included all multi-family or row houses within the same complex that contain at least one apartment building in the land transaction permit zone designation.

- This round of measures does not include tax reform. What is the background and future plan?

▲ While specific adjustments to real estate taxation were not included in these measures, the direction has been clearly indicated. We are considering "tax rationalization" measures to reduce excessive capital flows into real estate and guide them toward productive sectors. There is consensus within the government on raising property holding taxes and lowering transaction taxes. However, it will take time to finalize specific tax rates and application criteria. Since comprehensive tax reforms, including property and transaction taxes, are difficult to decide in the short term, the Ministry of Strategy and Finance will lead a comprehensive review through research projects and a task force with relevant ministries.

- There are concerns that the introduction of special judicial police for real estate by the Ministry of Land, Infrastructure and Transport overlaps with the supervisory body under the Prime Minister's Office.

▲ The functions are different. The new supervisory body under the Prime Minister's Office will comprehensively coordinate and oversee irregularities in real estate transactions and share investigation and inspection information among relevant agencies. It is being designed to have direct investigative authority. In contrast, the Real Estate Consumer Protection Planning Team at the Ministry of Land, Infrastructure and Transport will be responsible for on-site monitoring and planned investigations, reporting findings to the National Tax Service or police and requesting investigations. We plan to establish a special judicial police unit within this organization to directly respond to violations of the Real Estate Transaction Reporting Act, the Licensed Real Estate Agent Act, and the Housing Act. Work is underway to specify the supervisory body's role, organizational structure, and legal basis, and related bills will be discussed in the National Assembly. There are also plans to establish this body as a second-level division within the Prime Minister's Office.

- These are unprecedentedly strong measures. Did the President issue any direct orders? What has been the response?

▲ These measures were developed primarily by the Ministry of Land, Infrastructure and Transport. The expansion of regulated areas and designation of land transaction permit zones fall under the ministry's jurisdiction and were reviewed from the working level. Loan and tax items were coordinated with the Financial Services Commission and the Ministry of Strategy and Finance. I have not received any direct feedback from the President regarding these measures.

- Amendments to laws related to redevelopment projects are being delayed, but regulations are being implemented first. Is this not inconsistent?

▲ There are no separate restrictions on interim or relocation loans directly related to redevelopment projects. Restrictions on the transfer of association membership are measures to prevent speculation and are not directly related to supply. The measures to promote redevelopment announced in the September 7 plan have already been reflected in the proposed amendments to the Urban and Residential Environment Improvement Act, and efforts are underway to ensure prompt enactment and implementation.

- What about the plan to bring officially assessed property values in line with market values?

▲ We are considering maintaining the current level of alignment between officially assessed values and market values. The process involves annual research projects and public hearings, with final decisions typically made toward the end of the year. We are currently in the preparation stage.

- The phenomenon of "putting all eggs in one basket" is cited as a factor driving up home prices. Was easing regulations on multiple-home owners considered, and is it possible in the future?

▲ This issue was not directly discussed in these measures, but it could be addressed in the future. As we begin considering tax rationalization to ease concentrated demand in specific areas, I believe comprehensive matters related to real estate taxation could be reviewed together.