Going forward, foreigners who do not reside in Korea will not be able to purchase dwellings in Seoul and the metropolitan area. The government has designated all of Seoul, along with seven districts in Incheon and 23 cities in Gyeonggi Province, as foreign land transaction permission zones. Foreign individuals, corporations, and governments must obtain permission from local governments to purchase dwellings in these zones. There is also a two-year residency requirement imposed on housing purchases. This is the first time the government has shifted foreign real estate transactions for speculative purposes to a permission-based system.
The Ministry of Land, Infrastructure and Transport designated all of Seoul, seven districts in Incheon, and 23 cities and counties in Gyeonggi Province as foreign land transaction permission zones after reviewing the central urban planning committee on the 21st.
Lee Sang-kyung, Vice Minister of the Ministry of Land, Infrastructure and Transport, noted, "The purchase of dwellings by non-resident foreigners for non-residential purposes has been steadily increasing," adding, "There have been numerous cases of suspected speculative transactions, such as high-value housing transactions with unclear funding sources." He continued, "We are designating foreign land transaction permission zones to preemptively block speculative transactions and establish a housing transaction order centered on actual residency."
◇Foreigners must submit funding plans when engaging in transactions in permission zones… Residency obligation imposed
Foreign individuals and corporations, as well as the government, must obtain prior local government approval to purchase dwellings in the land transaction permission zones. The range of dwellings includes apartments, detached houses, multi-family houses, townhouses, and multiplex houses. Officetels are classified as general office facilities and are excluded from the permission targets. A Ministry of Land, Infrastructure and Transport official explained, "Land without dwellings in the permission zones will also be subject to regulation."
If foreigners conduct transactions without prior approval in the permission zones, the contracts will be invalidated. The effectiveness of the permission zones is from the 26th of this month until the 25th of August next year, lasting for one year. The government plans to decide on the extension of the permission zone designation period based on market conditions.
The obligation for foreigners to submit funding plans and supporting documents in the land transaction permission zones will be expanded. The government will amend the real estate transaction reporting law to require foreigners to specify the source of overseas funds, the names of financial institutions used, and the type of visa (residency qualification) when submitting funding plans. This measure aims to detect the illegal import of overseas funds and unqualified rental businesses.
A Ministry of Land, Infrastructure and Transport official said, "Currently, the funding plan is only mandatory for speculative heating zones, but there were many cases where the source of overseas funds did not have to be stated, leading to many instances of funding being secured through overseas financial institutions." He added, "In the future, we will revise the form to ensure that the source is revealed when the funds come from overseas financial institutions."
Foreigners who acquire dwellings in the permission zones will be required to reside in those dwellings for two years after the purchase. They must move into the relevant dwelling within four months from the date of transaction approval.
If the violation of the residency obligation is confirmed, the head of the local government where the dwelling is located will set a compliance deadline within three months and issue a compliance order. If they do not comply, a penalty of up to 10% of the land acquisition value will be imposed until the obligation is fulfilled.
The Ministry of Land, Infrastructure and Transport will also broaden on-site investigations and notify the Financial Information Analysis Center (FIU) if foreign housing transactions suspected of being associated with money laundering occur due to the influx of overseas funds, and plans to convey this to overseas tax authorities and financial information analysis organizations.
◇Government determines the impact of foreign speculative transactions on the housing market
This is the first time the government has designated land transaction permission zones for foreigners to prevent housing speculation. While there have been foreign land transaction permission zones previously, these were limited to border islets, such as Baengnyeongdo and Daecheongdo, for the purpose of strengthening territorial sovereignty.
The reason the government designated these permission zones is that it determined that the increase in housing transactions by foreigners has influenced the rise in domestic housing prices.
The vice minister stated, "Although most foreign housing transactions are below 900 million won, the purchase of dwellings worth between 1.2 billion and 2 billion won also accounts for 2.6%." He added, "Seeing that foreigners have traded high-value dwellings in the 10 billion won range, I think there might have been transactions using means that domestic residents cannot access. I believe that analyzing the source of the funds and sharing them with overseas tax authorities or financial information analysis organizations could effectively block speculation."
The purchase of dwellings by foreigners has surged, particularly in the metropolitan area. The number of housing transactions by foreigners in the metropolitan area increased from 4,568 in 2022 to 6,363 in 2023, and then to 7,296 last year. So far this year, 4,431 transactions have occurred by July. The average annual transaction growth rate is 26%.
Regionally, Gyeonggi Province accounts for 62%, Incheon 20%, and Seoul 18%. By nationality, 73% of transactions are by Chinese nationals and 14% by Americans. By housing type, apartments account for 59%, and multi-family houses 33%.
In particular, transactions for speculative purposes by foreigners who do not reside in Korea are increasing in number. Non-resident foreigners are required to designate a management agent when purchasing domestic dwellings, and the number of metropolitan area housing transactions where a management agent was designated reached a total of 295 last year.
The government also discovered numerous transactions with a high ratio of cash financing for high-value dwellings and transactions involving minors, which are likely to be speculative. It has been confirmed that many deals involved borrowing the majority of the transaction amount from overseas financial institutions, then depositing it in domestic financial institutions and renewing the reported price, raising domestic housing prices.
The vice minister stated, "This measure aims to prevent foreign speculation through the inflow of overseas funds and fundamentally block foreign market disruption activities to stabilize housing prices and contribute to the housing welfare of our citizens."