With the Oct. 15 measures designating all of Seoul and 12 locations in Gyeonggi as land transaction permit zones, the industry expects that lifting the designation will not be easy. Although the Ministry of Land, Infrastructure and Transport specified the designation period through Dec. 31 next year, the likelihood of removing the permit zones at that time is low given the potential turmoil afterward.
While some areas with low home prices are calling for immediate removal, experts also warn that if action is not taken as soon as possible, lifting the permit zones will remain a distant prospect.
According to the Seoul Ward Mayors Council and the real estate industry on the 3rd, calls to lift the land transaction permit zones have continued since the Seoul Ward Mayors Council issued a joint statement on the 22nd formally requesting the government to "fully reconsider the land transaction permit system." At the time, the council delivered to the Ministry of Land, Infrastructure and Transport (MOLIT) a statement signed by the ward mayors of 15 autonomous districts. The districts that participated were Gangnam, Seocho, Songpa, Yongsan, Mapo, Gwangjin, Yangcheon, Yeongdeungpo, Dongjak, Gangdong, Dongdaemun, Jung, Jongno, Seodaemun and Dobong.
However, it is understood that there are no additional measures the council can take at its level, and it is watching the situation. Subsequently, Uiwang in Gyeonggi also submitted a proposal to the Ministry of Land, Infrastructure and Transport (MOLIT) requesting a full reconsideration of the designations for adjustment targets, speculative overheating districts and land transaction permit zones. If an area is designated as a permit zone, homebuyers there must complete payment of the balance, registration and move-in within four months after the contract and must live there for at least two years.
Permit zones apply only when certain conditions are met, and interpretations differ on this point. Designation targets areas where speculative transaction increases or development plans raise concerns about a sharp rise in real estate prices. In Seoul's case, the apartment sale price increase rate across the city is considerably higher than the national average. According to the Korea Real Estate Board (KREB), the cumulative increase in Seoul apartment sale prices from the start of the year through September was 5.66%, a large gap compared with the nationwide figure (0.11%).
However, the gap in cumulative gains varies even more by district within Seoul. From the start of the year through September, the highest cumulative apartment sale price increases were ▲ Songpa 15.22% ▲ Seocho 11.86% ▲ Gangnam 11.55%. In contrast, the lowest were ▲ Dobong 0.42% ▲ Jungnang 0.44% ▲ Geumcheon 0.78%, remaining in the 0% range. It is no exaggeration to say the three Gangnam districts pulled up overall apartment prices in Seoul.
In principle, if a local government head requests it, lifting the permit system is not impossible. Article 10 of the current Act on Report of Real Estate Transactions, Etc. stipulates that if a local government head requests lifting or reducing a permit zone and the government recognizes the grounds, it may lift or reduce it without delay. However, the Seoul city government is negative about lifting once the permit zones have been designated.
Oh Se-hoon, the Seoul mayor, appeared at the National Assembly inspection of the city and said, "The land transaction permit system is easy to designate but very difficult to lift. There was not enough discussion during the designation process," expressing regret, while adding, "If we push for lifting, market instability is highly likely to reappear." When the city lifted permit zones that had been designated in parts of the three Gangnam districts in February–March this year, there were cases where apartment prices in Jamsil-dong and Daechi-dong surged.
However, among experts, there is a view that areas with minimal increases should have the permit zones lifted as soon as possible. They note that the price-restraining effect of the permit zones is limited, and it is unreasonable to impose the same regulation on all areas with large disparities in growth rates. Before announcing the latest measures, the Ministry of Land, Infrastructure and Transport (MOLIT) considered designating Guri, Goyang, Gimpo and Hwaseong (Dongtan) as permit zones, but it is understood to have concluded that apartment price increases in those areas were not high enough to warrant permit zones.
Moreover, it is unlikely that home prices across Seoul will stabilize enough by the end of next year, the permit zone designation period, to justify lifting it. This is because market liquidity is increasing and apartment supply is expected to be insufficient. Since last October, the Bank of Korea has cut the base rate four times from 3.50% per year to 2.50%. According to Real Estate R114, the number of Seoul apartment move-ins will fall about 40%, from 46,738 households this year to 28,614 next year. In 2027, it is projected to shrink to 8,516 households.
Lee Chang-moo, a professor of urban engineering at Hanyang University, said, "A bold decision is needed to reduce and adjust the permit zones right now," adding, "We will reconsider whether to extend the permit zones at the end of next year, but once designated, it will be difficult to lift."
Ko Jun-seok, a chief professor at the Sangnam Institute of Management at Yonsei University, said, "Designating apartments as permit zones is not very effective and also limits homebuying opportunities for end users without dwellings," adding, "It is better to quickly lift the permit zones only in areas with minimal increases."
However, considering the balloon effect, some say stabilization of home prices across all of Seoul should be confirmed. As demand poured into other Han River belt areas such as Mapo, Gwangjin and Gangdong due to permit zones on the three Gangnam districts and Yongsan, overall home price stabilization should be a precondition.
Yoo Seon-jong, a professor of real estate at Konkuk University, said, "Permit zones were designated because the home price increase rates were confirmed, and this condition must first be resolved," adding, "Lifting them because public opinion says Nowon, Dobong and Gangbuk should be removed goes against principle."