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 In

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 General for Housing and Land at the Ministry of Land, Infrastructure and Transport, held a background briefing at the Government Complex Sejong on the same 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, so it was inevitable to designate all 25 districts. If the upward trend in housing prices continues to spread, we will consider additional designations of regulated zones." He also noted that the likelihood of a significant worsening of the rental market due to strengthened requirements for actual residence is low, but added that, in response to the trend of converting jeonse (lump-sum deposit leases) to monthly rentals, it is necessary to consider tax benefits such as deductions for monthly rent.

This set of measures is characterized by subdividing the mortgage loan limits by housing price, and by including jeonse loans under the total debt service ratio (DSR) regulation, significantly reducing the purchasing power through loans. For homes priced at or below 1.5 billion won, the maximum loan remains at 600 million won, as before. For homes priced between 1.5 billion and 2.5 billion won, the limit is 400 million won, and for homes exceeding 2.5 billion won, only up to 200 million won can be borrowed. In addition, with all of Seoul designated as a land transaction permit zone, gap investment-buying homes with tenants under jeonse contracts-has effectively become impossible. Kim acknowledged, "It is true that some loan restrictions will affect genuine buyers," and added, "We will continuously monitor market conditions and consider supplementary measures if necessary." Although tax reforms were not included, a task force comprising relevant ministries will be launched early to rationalize property holding and transaction taxes.

Regarding the controversy over designating regulated areas without prior consultation with the Seoul Metropolitan Government, Kim responded, "All official procedures were followed." The new real estate supervisory body under the Prime Minister's Office, to be established next year, is being discussed with the possibility of granting it direct investigative authority if necessary. Experts believe that these measures will inevitably lead to a short-term freeze in transactions and price adjustments, but point out that abundant market liquidity and expectations of interest rate cuts could act as variables, so it remains to be seen whether this will lead to long-term market stabilization.

The following is a Q&A with Director General Kim.

- There are concerns about a balloon effect in neighboring areas of Gyeonggi Province.

▲ We gave this a lot of thought. Deciding to designate all 25 districts of Seoul was not done lightly, as such regulation can inconvenience the exercise of property rights. We considered various alternatives to maximize effectiveness while minimizing the scope of designation. In Seoul, the price increases that started with high-priced homes have continued to spread, and now regions along the Han River belt are seeing significant rises, with the trend expanding both north and south. We determined that if only some areas were designated, the upward trend in housing prices would likely spread to the remaining areas, so we designated all of Seoul. For Gyeonggi Province, we included areas near Gangnam where prices have risen significantly, as well as surrounding regions where the rate of increase is expanding. However, we felt that designating the entire province would be excessive, so we limited it to 12 areas. If further expansion is observed in the future, we will keep the option of additional designations open and review as needed.

- Minister Kim Yoonduk stated before the Chuseok holiday that "there will not be frequent policy announcements."

▲ The current market situation is such that the pace and scale of housing price increases are very rapid. If we miss this window, it could become extremely difficult to manage at a later stage, which would ultimately harm citizens. Therefore, we had no choice but to introduce strong suppression measures. I believe we have presented the necessary tools at the right time.

- There are concerns that applying the 1.5 billion won standard for mortgage loan limits will increase the burden on genuine buyers in northern Seoul and further widen the asset gap.

▲ The core of this measure is to restrict loans for high-priced homes. For homes under 1.5 billion won, the same level of loans as before is allowed, but for homes above 1.5 billion won, the loan limits are gradually reduced by price range. If there were only a single standard, there could be distortions with attempts to lower prices just below 1.5 billion won, so we set regulations in stages: 1.5 billion, 2.5 billion, and above 2.5 billion won. By reducing loan amounts step by step, we have strengthened regulations on high-priced homes.

- Won't there be a rush of transactions at the 1.5 billion won threshold, or attempts to lower prices to avoid regulation?

▲ The financial authorities have considered this as well. If there were only a single standard, prices could cluster around the 1.5 billion won mark, so we divided the ranges into 1.5 billion, 2.5 billion, and above 2.5 billion won. This is a measure to prevent concentration in specific price bands.

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

▲ When designating regulated or adjustment-target areas, we are legally required to go through official consultation procedures with local governments. We request opinions in writing, review the responses, and then notify the results. This time, all procedures were followed as usual. While we understand Seoul's concerns, we judged that designation was inevitable to achieve the greater goal of residential stability. For land transaction permit zones, there is no legal obligation to consult, but both Seoul and Gyeonggi were informed in advance. Seoul agreed with the expansion of regulated areas but expressed concerns about some land permit zones. However, they did not officially state an "opposition" or "impossible to designate" position.

- Can the mayor of Seoul lift the land transaction permit zones designated by the Minister of Land, Infrastructure and Transport?

▲ No. The authority to designate and to lift must be held by the same entity.

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

▲ I do not believe that is likely. When a home is newly purchased for actual residence, the buyer's previous residence typically becomes available for rent, so the overall supply does not change significantly. While the rental market has not seen price increases as sharp as the sales market, we are monitoring it closely. However, as the trend of converting jeonse to monthly rentals continues, it is necessary to consider tax benefits such as deductions for monthly rent to ease the burden of rising rents.

- Why were multi-unit and row houses that include at least one apartment building within the same complex included in the land transaction permit zones?

▲ When Gangnam’s three districts and Yongsan District were previously designated, there were cases like Hannam The Hill, where some buildings were classified as "row houses" in the official records and thus excluded from regulation, resulting in regulatory arbitrage. In reality, they had the same use and transaction characteristics as apartments but were treated differently only due to administrative classification. This time, to address such fairness issues, we included all multi-unit and row houses within the same complex that have at least one apartment building in the land transaction permit zones.

- The tax reform was omitted. What is the background and future plan?

▲ Although specific adjustments to real estate taxes were not included in this measure, the direction has been clearly indicated. We are reviewing "tax rationalization" plans to ease excessive capital flows into real estate and guide funds toward productive sectors. There is internal 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 holding and transaction taxes, are difficult to decide in the short term, the Ministry of Strategy and Finance will take the lead in conducting research and a task force with relevant ministries for a thorough review.

- There are concerns that the introduction of special judicial police for real estate by the Ministry of Land, Infrastructure and Transport overlaps with the role of 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 acts that disrupt order in real estate transactions and will share investigation and inspection information among related agencies. It is being designed to allow for direct investigations as well. In contrast, the Real Estate Consumer Protection Planning Team at the Ministry of Land, Infrastructure and Transport is responsible for on-site monitoring and planning investigations, and will notify the National Tax Service or police of findings and request investigations. We plan to establish a special judicial police unit within this organization to directly address violations of the Real Estate Transaction Reporting Act, the Licensed Real Estate Agents Act, and the Housing Act. The roles, organizational structure, and legal basis of the supervisory body are being specified, and related bills will be discussed in the National Assembly. There are plans to establish it as a division-level organization within the Prime Minister's Office.

- These are unprecedentedly strong measures. Was there any direct order from the President? What has been the response?

▲ These measures were primarily developed 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. The 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. Isn’t this out of sync?

▲ There are no separate restrictions on interim or relocation loans directly related to redevelopment projects. The restriction on transferring association membership is a measure to prevent speculation and is not directly related to supply. The redevelopment activation measures announced in the September 7 policy have already been reflected in the amendment to the Urban and Residential Environment Improvement Act, which has been introduced, and we are working to implement them through prompt legislation.

- What about the adjustment of publicly announced property values?

▲ The rate of adjustment for publicly announced property values is being considered to remain at the current level. The process will be finalized around the end of the year after research and public hearings, and we are currently in the preparation stage.

- The phenomenon of "putting all eggs in one basket" has been cited as a factor driving up home prices. Was easing regulations for multiple homeowners considered? Is it possible in the future?

▲ This was not directly discussed in this round of measures, but it may be considered in the future. Since we have started by reviewing tax rationalization measures to ease demand concentration in specific areas, I believe that comprehensive real estate tax issues could also be reviewed together going forward.