The Seoul city government is facing a surge of criticism directed at Mayor Oh Se-hoon following its decision to expand the land transaction permit system (land permit system) to encompass all apartments located in Gangnam, Seocho, Songpa, and Yongsan districts. This comes just over a month after the land permit system was lifted in the designated areas of Jam, Sam, Dae, and Cheong (Songpa's Jamsil-dong, Gangnam's Samsung, Daechi, and Cheongdam-dong). There are concerns that the recent surge in real estate prices is likely to be short-lived, and that the expanded designation of the land permit system may lead to adverse effects such as a 'balloon effect.' Above all, there are criticisms that the inconsistency in real estate policy has eroded trust.
On the morning of the 19th, the government and the Seoul city government held a 'real estate-related agency meeting' at the Seoul Government Complex in Jongno and decided to apply the land permit system to the entire Gangnam area (Gangnam, Seocho, Songpa) and Yongsan district. The period is from the 24th of this month to September 30, lasting for six months. This includes 2,200 apartment complexes and approximately 400,000 households in the four districts. This decision was made after observing a noticeable rise in house prices due to gap investments following the lifting of the land permit system in the Jam, Sam, Dae, and Cheong areas last month on the 12th, prompting an expansion of regulatory areas beyond just the areas where the system was lifted.
Mayor Oh Se-hoon acknowledged, 'I humbly accept the criticism that the volatility in the real estate market has increased, particularly around Gangnam, following the lifting of the land permit system,' but added, 'We will take this opportunity to expand the land permit system, which was limited to the Jamsil and Gangnam areas, to other regions as well, making this a chance for transformation in a positive sense.'
As this measure has been announced just over a month after the lifting of the land permit system in the Jam, Sam, Dae, and Cheong areas, criticism in the market is boiling over. There are comments suggesting that this resembles the failed real estate policies of the previous Moon Jae-in administration. Many believe that approaching the market with a short-term focus will generate adverse effects and only trigger the balloon effect through excessive regulation. The land permit system was instituted to prevent continuous serious speculation due to large-scale development; thus, many argue that utilizing it as a tool to control housing prices is inappropriate.
Professor Park Sang-in of the Graduate School of Public Administration at Seoul National University said, 'The reason that real estate policies have continuously failed under past administrations is that they approached it only in the short term, and this action by the Seoul city government appears nothing more than a peak of incompetence, repeating failed policies.' He added, 'It should have been viewed with a long-term perspective, and because that was not done, the credibility of the policies has entirely eroded.'
Before lifting the land permit system last month, the Seoul city government commissioned a study last year to prepare the grounds for that decision. In December of last year, it held a citizens' discussion meeting to announce the results of that study. Following the designation of the land permit system in June 2020 for the Jam, Sam, Dae, and Cheong areas, housing prices in adjacent areas initially fell by about 9.5% over the first two years, but subsequently turned to an upward trend, recording an increase rate of approximately 4%. While initial regulations did show a price stabilization effect, that effect diminished over time. Mayor Oh Se-hoon used these results as a basis to state in January, 'The land permit system, which was chosen during exceptional circumstances, is under active review for lifting.'
Professor Park Hapseo, a joint professor at Konkuk University Graduate School of Real Estate, noted, 'Policies must be predictable, consistent, and their effects must be clear,' and added, 'The land permit system has virtually no effect in suppressing price increases. It infringes upon the freedom of relocation and property rights, allowing only the cash-rich to purchase homes, which exacerbates the polarization problem.'
Some argue that the recent surge in prices has complex causes and cannot simply be attributed to the effects of lifting the land permit system. Analysts suggest that considering factors such as the Bank of Korea's interest rate cuts, the planned introduction of the 3-stage total debt repayment ratio (DSR) regulation in July, and projections of a sharp decline in supply, the lifting of the land permit system was merely a trigger for demand movement. Furthermore, given that transactions in the Jam, Sam, Dae, and Cheong areas were artificially suppressed for nearly five years, it is argued that the nationwide demand concentrated following the lifting of the land permit system, causing prices to jump like a spring, is a natural phenomenon in the short term.
Yoon Ji-hae, chief researcher at Real Estate R114, remarked, 'To think that the entire market's transactions increased and prices rose due to the land permit system would be like mistaking the tail for the body,' adding, 'In reality, the significant influence comes from the increased borrowing capacity due to interest rate cuts, and the lifting of the land permit system probably played only a catalyst role.'
Kim Hyo-sun, chief real estate official at NH Nonghyup Bank, stated, 'Reassessing the areas one month after the land permit system was lifted can undermine policy credibility and increase market uncertainty,' and noted, 'It’s true that it has stimulated buying sentiment that had been dormant, acting as a trigger for transaction activation, but it cannot be viewed as the main culprit of market instability.'
In the market, the dominant opinion is that 'it should have been observed a bit longer.' The weekly trends reported by the Korea Real Estate Board, which formed public discourse about the recent surge, are considered a sort of lagging indicator, and it could be a misjudgment to enforce regulations based solely on that. Lee Chang-mu, a professor in urban engineering at Hanyang University who was responsible for the land permit system study for Seoul city, stated, 'Unlike the trends from the Korea Real Estate Board, the flow of recent real transaction prices suggests that the rate of increase has somewhat diminished, leaving ample room to witness short-term surges.'
Professor Park Hapseo stated, 'The real estate economy contributes more than 10% to overall economic activation; to suppress it would be to tie up one's hands and expect economic revitalization.' He noted, 'During periods of real estate boom, the number of apartment transaction cases in Seoul approached 13,000, yet in February, it barely exceeded 5,000, making this measure appear as nothing more than 'overregulation.'