[Real Investment] Villas Benefit from Redevelopment Amid Seoul Land Transaction Regulations, Replacing Apartments

Mandatory Residence Requirement for Apartments Due to 10·15 Regulation
Villas Exempt from Restrictions, Investment Appeal Grows
Spotlight on Redevelopment Project Expectations
Transaction Volume Soars in Premium Areas Like Gangnam and Seocho

Seoul cityscape. Photo by Yonhap News

As all of Seoul has been designated as a Land Transaction Permission Zone, regulations on apartment transactions have increased, leading to a boost in demand for "villas" (multi-family housing). With stricter requirements for actual residence, the purchase of apartments for gap investment (buying with tenants in place) has been blocked, making villas, such as row houses and multi-unit dwellings, more attractive as investment products. Expectations for redevelopment projects are rising, and transaction volumes are increasing, especially in premium areas like Gangnam and Seocho districts.

According to the Korea Real Estate Board on December 24, the cumulative change in the sales price index for row houses in Seoul from January to November this year was 4.34%. This figure is 2.6 percentage points higher than the cumulative change of 1.74% in the greater Seoul metropolitan area. In Incheon (-1.00%) and Gyeonggi Province (-0.22%), the index fell, meaning that price changes outside of Seoul declined.

Even compared to last year, the cumulative change for row houses in Seoul this year was overwhelmingly higher. During the same period last year, the cumulative change was 0.95%, but this year it jumped by 3.39 percentage points.

The "10·15 Regulation" is cited as the main reason for the sharp rise in Seoul's price index. With all of Seoul designated as a Land Transaction Permission Zone, buyers of apartments are now required to live in the properties. In contrast, villas, including row houses, allow for tenants, making them a better investment option than apartments. In October, the monthly change in the sales price index for row houses reached 1.02%, the highest monthly increase this year. This is 0.32 percentage points higher than the previous month's 0.70%. Last month, the index also rose by 0.88%.

In particular, the Seoul Metropolitan Government is accelerating the pace of redevelopment projects to promote housing supply. This is enhancing the appeal of villa investments. Compared to reconstruction projects, where the transfer of membership rights is restricted after association formation approval, redevelopment projects remain freely tradable until the management and disposition plan is approved, making them more popular. Areas that applied for project implementation approval before January 24, 2018, are especially favored by investors. Examples include Zone 1 of the Noryangjin Redevelopment Promotion District (New Town) in Dongjak-gu and Zones 2 and 3 of the Bukahyeon New Town in Seodaemun-gu.

Additionally, the city is focusing on the "Moatown Project," which aims to redevelop aging low-rise residential areas by grouping them into blocks, as large-scale redevelopment is difficult in such neighborhoods. Last month, the city announced a plan to shorten the redevelopment period for the Jungnang-gu Junghwa-dong Moatown Project, which had been neglected for 20 years, from the previously targeted 9 years to a final goal of 7 years. Junghwa-dong Moatown was selected as a target site in 2023, and the city aims to supply up to 2,801 units in buildings up to 35 stories high by 2030.

Separate from the city's efforts, investors targeting redevelopment projects are active in premium areas such as Gangnam and Seocho districts. According to the Ministry of Land, Infrastructure and Transport's real transaction price disclosure system, the number of row house and multi-unit dwelling transactions in Gangnam and Seocho districts reached 431 in the two months after the 10·15 measures (October 15 to December 15), compared to 358 in the two months prior (August 14 to October 14), representing a 20.4% increase. In particular, transactions in Seocho district rose by 26.7%, from 191 to 242 during the same period. Experts advise that, given the nature of redevelopment projects, which take a long time, investors should keep this in mind.

Yoon Sumin, Real Estate Specialist at NH Nonghyup Bank, said, "Currently, villas are widely seen as investment targets through redevelopment projects such as the Moatown Project, rather than as residences. However, unlike apartments, it is difficult to make short-term profits, so it is advisable to purchase in areas with high redevelopment potential from a long-term perspective, rather than aiming for quick gains." Kwon Youngsun, Team Leader at Shinhan Bank's Real Estate Investment Advisory Center, also noted, "As regulations are concentrated on apartments, interest is shifting toward redevelopment. However, redevelopment projects can always fall through, so it is important to focus on locations and business feasibility, especially in prime areas like the three Gangnam districts."

In the auction market as well, villas in Seoul with redevelopment potential are attracting many bidders. On November 3, a 52-square-meter (fourth floor) multi-unit dwelling in Jayang-dong, Gwangjin-gu, was sold for 961 million won, which is 138.9% of the appraised value of 692 million won. There were 23 bidders, resulting in fierce competition. This property is reportedly located in a site designated for Gwangjin-gu's expedited integrated planning project.

Lee Juhyun, Senior Researcher at GGI Auction, said, "Villas located in areas designated for redevelopment projects are increasingly popular in the auction market due to expectations of rising value. With the ongoing issue of housing supply shortages in Seoul and the city's strong commitment to redevelopment, interest in villas is expected to continue in the future."