"What’s the point of blocking gap investment?" Outlying home prices jumped 400 million won, topping 2 billion won... "Caught in a regulatory trap" [One Year of Land Transaction Permit Rules Across Seoul]

Home prices in outlying areas surge despite curbs on gap investment
"Blanket designations are a problem"... Calls for "partial lifting" as well

One year has passed since land transaction permit zones were designated across the board. However, experts are questioning the policy’s effectiveness. Although the measure blocked so-called “gap investment,” in which buyers purchase homes with tenants in place, housing transaction volumes have barely changed, while prices continue to rise. With the zones set to expire at the end of this year, the government says it will review market conditions before deciding whether to extend or expand them.

After all of Seoul was designated a Land Transaction Permit Zone last October, gap investment was curbed. But home prices in outlying areas have surged, bringing significant unintended consequences. A view of Nowon-gu, Seoul, where mid- and lower-priced apartment complexes are concentrated.

Permit approvals in Nowon, Gangseo, Seongbuk, and Guro account for more than 30%

According to the Seoul Metropolitan Government on the 12th, a total of 55,990 permits were issued for housing-related land transactions in Seoul from October last year, when all 25 districts were designated as land transaction permit zones, through August this year. Nowon-gu had the highest number of approvals, with 6,941, or 12.4% of Seoul’s total. It was followed by Gangseo-gu with 3,921, Seongbuk-gu with 3,506, Songpa-gu with 3,479, and Guro-gu with 3,327. The four districts with relatively large concentrations of mid- to low-priced apartments - excluding Songpa-gu - accounted for 31.6% of all approvals.

By contrast, the three Gangnam districts, which account for 21.5% of all apartment units in Seoul, received 7,337 approvals, just 13% of the total 55,990. In Gangnam-gu, approvals peaked at 445 in April, then fell to 315 in May, 177 in June, and 131 in July, before shrinking to 93 in August. Seocho-gu showed a similar trend, with approvals standing at just 77 in August.

It is also noteworthy that the total number of apartment sales in Seoul barely changed despite the restrictions on gap investment. Transactions in the Gangnam area declined, but an increase in outlying areas offset the drop. An analysis of Seoul Real Estate Information Plaza data shows that 70,896 apartment sales were recorded in Seoul over the year from October 2024 through September last year. Over the following year, from October last year through September this year, the figure was 67,942. Despite the restrictions on gap investment, apartment sales in Seoul fell by just 4.2%.

Gap investment blocked, but home prices in outlying areas rose by as much as 400 million won... rental market also unsettled

An analysis of the Korea Real Estate Board’s real estate statistics system shows that apartment prices in Seoul continue to rise, despite the ban on acquiring homes for purposes other than owner-occupancy.

Outlying areas, where transactions were concentrated, also led the rise in Seoul home prices. The northeastern region’s index rose 11.34%, from 92.73 to 103.25, while the southwestern region’s index climbed 12.43%, from 91.11 to 102.44. The northwestern region also posted an 11.34% increase. Over the same period, the southeastern region, which includes the three Gangnam districts, rose 8.54%, from 93.01 to 100.96.

The actual sale price in October last year for the 84-square-meter Type E unit (exclusive floor area) at Raemian Gireum Centerpiece in Gireum-dong, Seongbuk-gu, was 1.63 billion won (23rd floor). The most recent transaction, in July this year, reached 2 billion won (15th floor).

Even aging apartment complexes in outlying areas, built more than 20 years ago, have not been spared. The actual sale price of an 84-square-meter Type A unit at Hyundai Apartment in Gaebong-dong, Guro-gu, which was between 830 million and 870 million won just before the area was designated as a permit zone in October last year, reached 1.195 billion won last month (19th floor).

"Blanket designation is excessive... precise analysis of its effects is needed"

The designation of land transaction permit zones under the October 15 measures is set to expire on December 31 this year. The government will then have to decide whether to extend the designation period or lift the restrictions, taking market conditions into account. Although the criteria for lifting the restrictions include price stabilization and a recovery in transaction volumes to normal levels, it is difficult to expect prices to stabilize in the short term under current conditions.

Academic experts say the government has fallen into a “regulatory trap” by applying the land transaction permit system indiscriminately. The policy has fallen short of expectations, but it is also difficult to withdraw easily, they say. Instead, the government now faces pressure to expand the zones because of spillover effects.

In February last year, the Seoul Metropolitan Government, a local government, lifted the permit-zone designation for 43,772 units in 91 complexes across Jamsil, Samseong, Daechi, and Cheongdam-dong. But after transactions surged and home prices rose, particularly in the Gangnam area, it designated Gangnam-gu, Seocho-gu, Songpa-gu, and Yongsan-gu as permit zones just over a month later. According to Democratic Party of Korea lawmaker Jang Jongtae, transactions tripled within 35 days of the lifting, while the transaction value approached 7.8 trillion won.

Go Junseok, a professor at Yonsei University’s Sangnam Institute of Management, said, “As the restrictions have remained in place for a long time, they are having the unexpected effect of reducing the supply of homes for monthly and long-term lease.” He added, “Lifting the permit-zone designation would bring more homes for monthly and long-term lease onto the market, but the government cannot easily do so because of gap investment.”

The government says it will carefully consider whether to extend the designation or expand the areas covered after reviewing market conditions. At a meeting of the National Assembly’s Land, Infrastructure and Transport Committee on October 7, Minister of Land, Infrastructure and Transport Hong Jiseon said, “Based on the current situation, we believe there is a certain level of demand for the land transaction permit system.” Regarding whether to expand the zones, Hong said the government would “comprehensively monitor and review housing price increases, competition rates for housing subscriptions, and other factors.” Hong also said that requiring local governments to consult in advance with the Ministry of Land, Infrastructure and Transport and analyze the market impact before lifting large areas from the zones “should be applied when necessary.”

Lee Changmu, a professor at Hanyang University, called for the zones to be lifted in stages. “To ease market instability, including uncertainty in the rental market, the government should first lift the restrictions outside major areas, even if it cannot lift them all at once,” Lee said. “Outlying areas of Seoul and parts of Gyeonggi Province outside the Gangnam area should be prioritized for the lifting of restrictions.”

Choi Eunyoung, director of the Korea Urban Research Institute, said, “The land transaction permit designation should be used selectively and precisely, but the zones were too broadly designated from the outset.” However, Choi said that even under current circumstances, lifting the designation for some existing zones should be approached with caution. “The market seems to view this as a test of the government’s policy commitment,” she said. “If the government lifts the designation for existing zones, it could inadvertently send the wrong signal to the market that gap investment is being allowed.”

Byun Changheum, a professor in the Department of Public Administration at Sejong University, said, “As we saw when some areas in Seoul’s Gangnam region were removed from the permit zones in February last year, any decision to lift the designation requires careful consideration.” However, Byun added, “The zones appear to have been designated too broadly this time. Before the designation period expires, the scope of the permit zones should be reviewed again through a thorough analysis of their effects.”

This content was produced with the assistance of AI translation services.