Designation of 'Land Transaction Permit Zones' due to Surge in Foreign Housing... Blocking Speculation in the Capital Region

[Financial News] As foreign housing transactions have surged in the capital region in recent years, the government has designated the entire Seoul area and major regions in the capital as land transaction permit zones (Land Transaction Permit Zones) to impose regulations. The aim is to reduce market instability by blocking foreign rental and investment demand that is not for residential purposes. This measure is expected to impact the real estate market and legislative discussions in the National Assembly in the future.
■ Foreign housing transactions in the capital region increased by 60% over 3 years
The Ministry of Land, Infrastructure and Transport announced on the 21st that it has designated the entire Seoul area and 23 cities and counties in the capital region, including Jung-gu and Yeonsu-gu in Incheon, Seongnam, Gwacheon, Yongin, and Suwon in Gyeonggi, as Land Transaction Permit Zones after a review by the Central Urban Planning Committee. This measure will be applied for one year from August 26 to August 25 next year.
The background of this measure is the growing concern about speculation as foreign housing transactions are concentrated in the capital region. The Ministry of Land, Infrastructure and Transport particularly noted the possibility of purchases funded by overseas capital, especially in conjunction with the loan regulations of June 27.
According to real estate transaction report data, foreign housing transactions in the capital region increased by more than 60% over three years, from 4,568 transactions in 2022 to 6,363 in 2023 and 7,296 last year. This year, 4,431 transactions were recorded until July, continuing the upward trend. By region, there were 2,815 transactions in Gyeonggi, 776 in Incheon, and 840 in Seoul.
In Seoul, after the entire apartments in the three districts of Gangnam and Yongsan-gu were designated as Land Transaction Permit Zones in March, transactions slowed down but increased again to 124 in June and 135 in July. The Ministry of Land, Infrastructure and Transport pointed out that despite a decrease in some areas, foreign demand is actually expanding overall in Seoul.
The government views a significant portion of these transactions as speculative demand aimed at rental income or capital gains. By nationality, Chinese (73%) and Americans (14%) accounted for the majority, and the types of housing traded were mainly apartments (59%) and multi-family houses (33%).
In particular, there is a rapid increase in cases where non-resident foreigners without a domestic address appoint a trustee to purchase properties. This system was introduced in August 2023 and has been steadily increasing since last year with 295 cases, with Americans (63.5%) and Chinese (22.1%) accounting for a significant portion. Some high-priced houses are traded entirely in cash, raising concerns about speculation due to the influx of overseas funds.
■ Foreign regulation legislation continues... Effectiveness is uncertain
This government measure is also linked to legislative movements in the National Assembly. Bills have been proposed to convert foreign real estate transaction regulations from a reporting system to a permit system, or to codify the principle of reciprocity to restrict transactions from countries unfavorable to Koreans. Amendments to block land acquisition near military and security facilities and strengthen residential obligations are also under discussion.
The Ministry of Land, Infrastructure and Transport stated that this designation will not be a short-term measure but will lead to continuous monitoring and planned investigations of foreign transactions. If illegal inflow of overseas funds or money laundering is suspected, they plan to notify overseas FIUs through the Financial Intelligence Unit (FIU) and provide information to overseas tax authorities through the National Tax Service if deemed necessary for capital gains taxation.
However, the restriction on permit zones is limited to housing transactions such as single-family, multi-family, apartments, and row houses, and officetels are classified as business facilities and are excluded from regulation. There is criticism that this is a loophole in the system as there are many residential officetels with structures similar to apartments.
Some expect that suppressing foreign demand will have the effect of cooling the heat in the high-priced apartment market. However, given the ongoing supply shortage and domestic investment demand, it is difficult to expect a quick stabilization in prices.
Eun-hyung Lee, a research fellow at the Korea Construction Policy Research Institute, said, "Considering the residential obligations, loan regulations, and source of funds investigations that have been applied to Koreans, this measure can be positively evaluated as it puts a certain brake on foreign transactions." He added, "However, the fairness of loan regulations and the exclusion of officetels are regrettable, and since the proportion of foreign-owned housing is still not large, the short-term market stabilization effect is limited. In the future, discussions need to expand to include reciprocity between countries and the issue of permanent acquisition of real estate ownership."

en1302@fnnews.com Inseo Jang Reporter