The government (Ministry of Land, Infrastructure and Transport) and Seoul City have expanded the land transaction approval zone to cover all areas of Gangnam and Yongsan, raising concerns that the effects of strong regulation in the real estate market will spread to the rental market, including jeonse and monthly rent. It is possible that blocking 'gap investment,' in which individuals purchase dwellings using jeonse, will lead to a shortage of supply in jeonse listings. Some experts criticized the government's excessive regulation, stating, "This is a situation where tenants are caught in the whale fight."
According to the Ministry of Land, Infrastructure and Transport and Seoul City on the 20th, the areas affected by the expanded application of the land transaction approval zone are 2,200 apartment complexes in Seocho, Gangnam, Songpa, and Yongsan districts, involving 400,000 households. To purchase dwellings in these regions, buyers must reside there for two years. If there are current tenants, the buyer must submit a 'confirmation of termination of dwelling lease contract' to the district office to verify that the tenant has vacated the property and that the buyer resides there.
Many experts expect that this measure will cause a 'supply shock' in the jeonse and monthly rent market in these areas. With the blockage of gap investment, which has played a significant role as a provider of jeonse and monthly rent, it is expected that dwellings that have previously been available for jeonse or monthly rent will be occupied by actual residents, leading to a supply shortage that could result in a surge in jeonse prices.
One reason for the concern that a supply shortage will lead to rising jeonse and monthly rent prices is that jeonse prices have already been on an upward trajectory even before the expansion of the land transaction approval zone. According to the housing price trend released by KB Kookmin Bank, the jeonse price for apartments in Seoul last month rose by 0.03% from the previous month and by 0.1% compared to the end of last year. Compared to February 2024, a year ago, prices have increased by 5.92%. As of February, the average jeonse price for apartments in Seoul is 633.42 million won.
The jeonse supply-demand index, which analyzes the situation of jeonse supply, rose to 133.0 in February from 128.5 in the previous month, reflecting an increase of 4.5 points. When the index exceeds 100, it indicates a 'supply shortage' in the jeonse market, while below 100 indicates a 'sufficient supply' market. Since December of last year, the index has increased for three consecutive months, deepening the supply shortage.
Monthly rent prices are also continuing to rise. Looking at the monthly apartment rent price index, with January 2022 as a baseline of 100, the index for 11 autonomous districts south of the Han River, including the three districts of Gangnam, has risen for 12 consecutive months from March of last year to last month. Last month's index was 121.958, an increase of 8.7% (9.799) compared to February of last year (112.159).
Experts are generally concerned about the deepening supply shortage in the rental market. Jang So-hee, a senior researcher at Shinhan Investment Corp.'s real estate team, noted, "Gap investment has played the role of providing dwellings in the jeonse and monthly rent markets without actual residency, and since this supply has been blocked in the three districts of Gangnam and Yongsan, upward pressure on jeonse and monthly rent prices is expected to increase. This is the first time that the land transaction approval zone has been designated entirely by district, so its impact on the market is likely to be significant."
Kim Hak-ryeol, head of Smartube Real Estate Research Institute, said, "Jeonse prices were already rising, and the government's expansion of the land transaction approval zone has come at a time when sale prices were also rising. There are no activation measures for regional dwellings, and this attempt to restrict transactions only in Seoul is likely to exacerbate the preference for 'one high-value property,' which will only result in driving up both jeonse and sale prices simultaneously."
Song Seung-hyun, CEO of Urban and Economy, said, "In the Seoul rental market, complexes where jeonse and monthly rent prices are cheaper than sale prices are those undergoing redevelopment and reconstruction, and the expansion of the land transaction approval zone in Gangnam and Yongsan will eliminate the rental supply of these complexes, leading to a rise in jeonse prices."
Park Hap-soo, an adjunct professor at Konkuk University Graduate School of Real Estate, said, "The supply is already insufficient, and jeonse prices have continued to rise, which has now further escalated." Go Min-jeong, CEO of Gold Realty Real Estate Brokerage Firm, predicted, "The newly designated land transaction approval zone in Banpo-dong will be hit hard in the jeonse and monthly rent market."
However, some experts predict that the supply of rental housing may actually increase in areas outside Gangnam and Yongsan. Yoo Seon-jong, a professor at Konkuk University Department of Real Estate, noted, "People wanting to reside in Gangnam may, to avoid regulations due to the land transaction approval zone, list dwellings they own in other regions as rental properties through registered rental business, which means that the supply of rental housing could actually increase outside regulated areas."
The permit authority for allowing transactions within the land transaction approval zone is the district mayor of each autonomous district. However, it is highly likely that the permit authority will not approve transactions that do not involve actual residency, which means that people will have to either dispose of dwellings outside the approval zone or register as rental businesses, indicating that there is potential for increased rental supply outside Gangnam and Yongsan.