Cold Winds Hit Ansan and Siheung as Gap Investment Blocked... Major Chinese Buyers Also Pull Back [Real Estate AtoZ]

Transaction Volume Plunges 40% in Gyeonggi and Incheon
Provincial Areas Avoiding Regulations See Over 7% Increase
Falling Home Prices in Chinese-Concentrated Areas Like Ansan and Siheung Accelerate Exodus
Stricter "Microscopic Verification"

Just four months after the government designated most areas of the Seoul metropolitan region as foreigner land transaction permission zones (hereafter, permission zones) in August last year, real estate transactions by Chinese nationals in the region have plummeted by nearly 40%. Chinese buyers, once known as major players in Korea's real estate market, appear to have been significantly affected by these stringent regulations. In particular, areas with large Chinese populations, such as Ansan and Siheung, have seen notable declines in housing prices. However, in regions outside the metropolitan area where permission zone regulations are not in place, a slight increase in real estate purchases by Chinese nationals-a so-called "balloon effect"-has been observed.

A Steep Drop in Buying Activity Due to Regulatory Crackdown... Lowest in 2 Years and 10 Months

The government designated most of the Seoul metropolitan area as foreigner land transaction permission zones in August last year. The photo shows an apartment view of downtown Seoul from Namsan. Photo by Yonhap News.

According to an analysis on January 22 of the status of foreign ownership transfer (sale) applications from the court’s registration information plaza, the number of Chinese nationals who purchased collective buildings (apartments, row houses, multiplexes, officetels, etc.) in the Seoul metropolitan area in December last year totaled 361. This figure represents a sharp 39.9% decrease compared to August (601), just before the regulations took effect, and marks the lowest level in 2 years and 10 months since February 2023 (304), a period of real estate market stagnation.

By region, Gyeonggi Province saw a steep drop from 395 in August to 235 in December, while Incheon also nearly halved from 139 to 74, leading the overall decline in transaction volume.

The direct cause of the decline in real estate purchases by Chinese nationals was the designation of "foreigner land transaction permission zones," which took effect on August 26 last year. This regulation, which covers all of Seoul, 23 cities and counties in Gyeonggi Province, and 7 districts in Incheon, imposes a two-year mandatory residency requirement for residential property transactions. It effectively blocks "gap investment" (buying with tenants in place), which had been identified as a hotbed of foreign speculation.

The drop in housing prices in areas with large Chinese populations also negatively impacted real estate transactions. In Ansan, which has the largest Chinese population in Gyeonggi Province (32,359 as of June last year, 4.83% of the population), and Siheung, which ranks second (25,574, 4.59%), the annual apartment price change rates last year were -0.40% and -1.48%, respectively. Bucheon, with the fourth largest Chinese population (22,620, 2.85%), also recorded a -0.40% change.

"Declines in Densely Populated Areas Weaken Sentiment"... A Closer Look

Experts point out that not only regulations but also the downturn in real estate markets in areas with high concentrations of Chinese residents have further dampened buying sentiment. Park Wongap, Senior Specialist at KB Kookmin Bank, commented, "Chinese buyers tend to cluster in specific areas, and as prices in those areas continued to fall, their willingness to buy diminished," adding, "It is the combined effect of institutional barriers and falling prices."

In contrast, regions outside the scope of the regulations saw a partial "balloon effect," with the number of Chinese buyers increasing by 7.2% from 166 in August to 178 in December last year. Ham Youngjin, Head of Real Estate Research Lab at Woori Bank, explained, "As the regulatory crackdown focused on the metropolitan area, foreign capital either shifted to unregulated regions or adopted a wait-and-see approach."

Starting February 10, the government will further tighten regulations with a revised Enforcement Decree of the Real Estate Transaction Reporting Act. Going forward, foreign nationals must report not only their residency status but also whether they have actually resided in Korea for more than 183 days when acquiring a home. The source of funds statement must specify the name of the overseas financial institution, and if the source of funds is not clearly explained, the case may be reported to foreign authorities for suspected money laundering, reflecting a much tighter monitoring system. Park further predicted, "With additional regulations scrutinizing the source of funds and residency status like a microscope, the freeze in transactions by Chinese nationals is likely to persist for the time being."