As the government applies "triple regulations"—including designated areas subject to adjustment, overheated speculation zones, and land transaction permission zones—to all areas of Seoul and 12 areas in Gyeonggi Province, loan and subscription requirements will be tightened. While the government did not pull out the card of raising tax rates, it expanded regulated areas and also used a method that increases transaction tax burdens such as capital gains tax for multiple-home owners. Accordingly, under these measures, the capital gains tax burden for multiple-home owners will more than double. Some complexes are expected to see acquisition taxes surge by hundreds of millions of won when multiple-home owners purchase dwellings.
However, as the government is temporarily deferring, until May next year, the heavy taxation on capital gains and the exclusion of the special deduction for long-term holding, multiple-home owners seeking to avoid heavier taxes may dispose of dwellings by then.
On the 15th, the government held a meeting of Ministers from real estate-related ministries and announced "measures to stabilize the dwellings market" that designate all 25 autonomous districts of Seoul and 12 areas including Gwacheon, Gwangmyeong, and Seongnam's Bundang, Sujeong, and Jungwon districts as regulated areas (areas subject to adjustment and overheated speculation zones) and as land transaction permission zones.
◇ Transaction tax burden for multiple-home owners around "Marepu" jumps
When an area is designated as regulated, the transaction tax burden for those without dwellings or for temporary one-dwelling owners remains the same. However, for multiple-home owners, acquisition tax surcharges apply, increasing their tax burden. Two-dwelling owners face an 8% acquisition tax rate, and those with three dwellings face 12%. Although the government did not overhaul the tax system, it expanded the tax burden on multiple-home owners simply by designating regulated areas.
For example, if a one-dwelling owner purchases an 84㎡ exclusive area unit in "Mapo Raemian Prugio" in Mapo-gu, Seoul, for 2.2 billion won, the acquisition tax rate of 3% (for dwellings priced at 900 million won or more) would have applied before the regulated designation, resulting in 66 million won in taxes. Including local education tax and others, the total transaction tax was 72.6 million won.
However, with Mapo-gu designated as a regulated area, the transaction tax burden increases by more than 100 million won. In an area subject to adjustment, an 8% rate applies to two-dwelling owners, raising the acquisition tax to 176 million won. Adding the local education tax (8.8 million won) brings the total transaction tax to 184.8 million won.
Within areas subject to adjustment, multiple-home owners' capital gains taxes also increase. This is because capital gains are subject to heavier taxation and the special deduction for long-term holding is not available. For multiple-home owners, two dwellings face a surcharge of 20 percentage points on the basic rate (6–45%), and three or more dwellings face a 30 percentage point surcharge. However, the government has decided to temporarily defer, until May next year, these heavier capital gains taxes and the complete exclusion of the special deduction for long-term holding, temporarily opening an exit route for multiple-home owners. The market expects the temporary deferral to end without an extension.
Lee Eun-hyung, a research fellow at the Korea Research Institute for Construction Policy, said, "This is a period when various penalties apply to anything other than one dwelling," and noted, "Whether for investment or actual residence, the psychological range for dwellings that buyers are willing to purchase will narrow."
◇ First-priority subscription requirements strengthened to more than two years of enrollment and head of household status; redevelopment projects also affected
In the 37 metropolitan areas designated as regulated, first-priority qualification requirements for national and private dwellings are strengthened to those who have been enrolled for two years or more after opening an account and to heads of household. The proportion of allocations by points increases, and re-winning restrictions are extended to up to 10 years. These strengthened regulations apply to applications for approval to recruit occupants filed after the public notice date of designation as a regulated area.
In regulated areas, for dwellings, the transfer of pre-sale rights is banned for three years in the Seoul metropolitan area and for one year in provincial regions. For officetels with 100 or more units, a one-year transfer restriction also applies.
The Ministry of Land, Infrastructure and Transport plans to apply transfer restrictions immediately from the public notice date of designation as a regulated area. However, those who already owned pre-sale rights on the designation date (winners and purchasers of pre-sale rights) will be allowed one transfer.
Redevelopment projects included in regulated areas are also affected. For reconstruction, the transfer of union member status is prohibited after approval for union establishment; for redevelopment, it is prohibited after approval for the management and disposal plan. While sales transactions themselves are possible, the transferee cannot acquire union member status and becomes subject to cash settlement.
From the designation date of regulated areas, union members and general allottees selected as pre-sale recipients cannot apply for union-member allocations in other redevelopment projects located in overheated speculation zones within five years.
For reconstruction, the number of dwellings supplied per union member is limited to one dwelling. However, within the price of the previous asset or the scope of the exclusive residential area, supply of up to two dwellings (1+1) is allowed. Yet, among the 1+1 dwellings, one unit must be 60㎡ or less in exclusive area, and a transfer restriction applies for three years after the transfer notice.
Senior committee member Kim Hyo-seon of NH NongHyup Bank's real estate division said, "As restrictions on the transfer of union member status in reconstruction and redevelopment are strengthened, the entry of early speculative demand will be blocked," adding, "Across all of Seoul and parts of Gyeonggi, transactions will become difficult depending on the (readjustment) stage, so measures are needed if the share of loans is high."
◇ Loan amounts cut by hundreds of millions of won regardless of regulated-area apartment prices; multiple-home owners get "0 won"
Under the Oct. 15 real estate measures, loan limits will be sharply reduced in the 37 metropolitan areas subject to triple regulation. Through the designation of regulated areas, the government reduced the loan-to-value ratio (LTV) while also tightening loans a second time by setting mortgage loan limits by dwelling price through additional loan regulations.
The LTV in newly regulated areas is reduced from the current 70% to 40%. This means the amount you can borrow with a 1 billion won apartment as collateral falls from 700 million won to 400 million won. The Financial Services Commission's additional loan regulations cap mortgage limits by apartment price (market price) in the Seoul metropolitan area and regulated areas. The mortgage limit for apartments priced at 1.5 billion won or less remains the same at 600 million won; for apartments over 1.5 billion won and up to 2.5 billion won, the maximum is 400 million won; and for apartments over 2.5 billion won, up to 200 million won.
The reduction of LTV limits through regulated-area designation is expected to have a large impact on districts such as Nowon, Dobong, Gangbuk, and Yeongdeungpo, where average apartment prices are 1.5 billion won or less. Previously, when buying an apartment priced at 1 billion won in these districts, buyers could obtain up to 600 million won in mortgages (applying LTV 70% and the 600 million won mortgage cap). But with all of Seoul now designated as a regulated area and LTV 40% applied, the mortgage on this apartment is reduced to 400 million won.
Mortgage limits are also reduced in areas concentrated with high-priced apartments. For example, when purchasing a single 3.2 billion won apartment in Seocho-gu, including a mortgage, borrowers could previously obtain loans up to 600 million won. Going forward, they can borrow only up to 200 million won.
When purchasing an apartment with a loan in this way, buyers must move in within six months. If a person who already owns a dwelling purchases another in an additional regulated area, no loan is available at all.
Senior committee member Kim Hyo-seon said, "While it becomes more difficult for end-users to raise funds, the impact on those with ample cash is limited," adding, "For end-users without dwellings who can purchase without loans, the impact on their dwelling purchases is expected to be limited."