The government designated the three districts of Gangnam (Gangnam, Seocho, Songpa) and Yongsan as land transaction permission areas, which is expected to curb transactions in the region. However, there are expectations that the continued shortage of dwelling supply and the possibility of further interest rate cuts mean that the impact of this policy will not lead to a drop in housing prices in the area.
There are concerns in the market about a potential 'balloon effect' as investment demand shifts to areas such as Mapo and Gangdong. Experts believe that since the government has prepared the card of 'additional application of land transaction permission,' the price increase due to the balloon effect is likely to be limited.
On the 19th, the Ministry of Land, Infrastructure and Transport and the city of Seoul designated approximately 2,200 apartments in the three districts of Gangnam and Yongsan as land transaction permission areas. The designation period will last from the 24th to September 30 for six months.
Accordingly, the areas of Jam, Sam, Da, and Cheong (Songpa's Jamsil, Gangnam's Samsung, Daechi, and Cheongdam) which had their land transaction permission lifted last month, have been reassigned as land transaction permission areas. Additionally, the areas of Seocho and Yongsan, which have seen significant price increases, have also been expanded as land transaction permission areas.
◇ Gangnam three districts and Yongsan, demand for upgrading stalls… price decreases seem unlikely
There are predictions that the price rise in dwellings in the three Gangnam districts and Yongsan, which recently showed overheating trends, will stop as part of this housing market stabilization plan. It is expected that the investment sentiment that had focused on acquiring what is colloquially known as 'one outstanding unit' will worsen in these areas. However, there are also opinions that with the land transaction permission being designated for six months, it will be difficult for housing prices in areas like Gangnam to reverse to a declining trend.
Park Won-gap, senior real estate specialist at KB Kookmin Bank, noted, “The demand for purchasing apartments by outsiders who cannot live in them is expected to significantly decrease, leading to a reorganization of the actual residence market,” adding, “With the slowdown in investment sentiment, transaction volume for apartments in Gangnam and Yongsan is anticipated to decline, and price increases will also stall.” He continued, “General apartments, which have a high ratio of jeonse (rental deposit), are likely to be more impacted than reconstruction projects due to the evolving trend of owning one outstanding unit, suggesting that the trend of upgrading to higher-grade areas like Gangnam will be hindered.”
Ham Young-jin, the head of our bank's real estate research lab, stated, “With the regulation of areas that were previously leading price increases in Gangnam and Yongsan as land transaction permission areas, both gap investment demand — purchasing dwellings with jeonse — and fear of missing out demand are expected to decrease for the time being, leading to a slowdown in the transaction market.” He added, “However, since the land transaction permission designation is temporary until September 30, coupled with the low progress in the supply of the Seoul housing market, the reduction in completion volume in Seoul by 2026, and the expected increase in rental prices before the moving season in spring, there seem to be limits to pulling down the transaction prices in areas like Gangnam.”
Kim Hyo-sun, senior real estate specialist at NH NongHyup Bank, explained, “It is true that the lifting of the land transaction permission area has triggered potential buying sentiment and served as a trigger for revitalizing transactions, but it should not be viewed as the main culprit of market instability,” adding, “The overheating in the three Gangnam districts and Yongsan should be interpreted as a scarcity effect occurring as demand concentrates on specific areas amid supply shortages, not because of the lifting of the permission area.”
He added, “While there is a possibility that average transaction volumes and prices will be adjusted through the reassignment of land transaction permission areas, unnecessary disputes over property rights could arise as regulations expand to areas with little real impact, such as old apartments or single complexes.”
Seo Jin-hyung, a professor of real estate law at Kwangwoon University, commented, “Whether the land transaction permission will be lifted after six months will be crucial,” noting that the learning effect of price increases following the lifting of the land transaction permission could be reproduced.
◇ Demand shifting to Mapo, Gangdong, and Seongdong... concerns about the 'balloon effect'
Experts raised the possibility of a balloon effect occurring in areas like Mapo, Gangdong, and Seongdong, which are not bound by land transaction permission. However, since the government has hinted at the additional designation of land transaction permissions for regions showing noticeable price increase trends, they expect that the extent of dwelling price increases will be limited.
Kim, the senior specialist, stated, “Some gap investment demanders are likely to move to areas like Mapo, Gangdong, and Seongdong due to concerns over regulatory uncertainties and the potential for spread,” adding, “In this process, a balloon effect may occur, and as transactions using jeonse deposits are halted, rental listings in core areas may become limited, leading to an increase in rental costs.”
Ham, the lab head, noted, “The demand for purchasing dwellings in Seoul is likely to disperse to areas along the Han River that are not bound by land transaction permission,” adding, “There remains the possibility of a balloon effect where gap investments bypass areas like Yeongdeungpo (Yeouido), Mapo, Gwangjin, Gangdong, Dongjak, and Seodaemun.” However, he cautioned, “These areas could also be included in land transaction permission areas, adjustment target areas, or speculative overheating areas depending on the patterns of housing price instability, so the long-term balloon effect may be limited.”
Meanwhile, experts generally expressed negative evaluations about the government's regulatory measures introduced after just a month, stating, “There could be confusion in the market.” Contrary to the government's and Seoul's explanation that it is a preemptive measure to prevent a sharp rise in housing prices, there are opinions that the erratic policy has adversely impacted the market.
Ham said, “If sellers and buyers who were conducting transactions in these regions do not complete their transaction contracts by March 23, they will be subject to regulations on purchasing dwellings using jeonse deposits, leading to possible confusion in the market due to canceled transactions or accelerated transaction timings.”
Lee Eun-hyung, a research fellow at the Korea Construction Policy Institute, also mentioned, “The reassignment of land transaction permission areas is not preferable,” emphasizing, “Policies should be consistent and predictable to be good policies. Rapid reversals like this present problems.”