Korean government steps in with tough regulations to curb Seoul’s overheating property prices
The South Korean government will add more anti-speculation zones in Seoul, which will be subject to tougher regulations
As Seoul’s housing market shows signs of overheating, the government is renewing its fight against property speculation by increasing taxes and earmarking anti-speculation zones in South Korea’s capital.
Flat prices in South Korea’s capital have been showing signs of stabilising following the implementation of heavy capital gains taxes on owners of multiple homes starting in April as well as a property tax hike announced in July.
However, prices have been rising through the roof across the city following mayor Park Won-soon’s announcement of development plans.
At a meeting last Thursday presided over by Kim Dong-yeon, the economy and finance minister, the government decided to add more anti-speculation zones in Seoul, which will be subject to tougher regulations.
Currently, the city’s upscale southern districts of Gangnam-gu and Songpa-gu are designated as anti-speculation zones, as are Mapo-gu, Yongsan-gu, Seongdong-gu, Yeongdeungpo-gu and Nowon-gu.
Market observers expect the districts of Jongno-gu, Jung-gu, Dongdaemun-gu and Dongjak-gu, which have seen steep rises but are not designated as such so far, are likely to be subject to the strict restrictions.
The designation may come as early as next week.
According to the latest data by the Korea Appraisal Board, prices of Seoul flats rose 0.37 per cent from the previous week, marking the steepest jump in 30 weeks. The rise was previously limited to upscale southern districts, but now it is rising everywhere.
Yeouido and Yongsan, for which the mayor unveiled comprehensive development plans, saw property prices continuing their steep rise. And Yangcheon-gu and Jungnang-gu where the mayor said light rail train lines will be built are also making a quantum jump.
A 95 square metre flat in Yangcheon-gu’s Mokdong area, for instance, was sold recently at 1.57 billion won (US$1.4 million), jumping from 1.2 billion won earlier this year.
“The apartments saw around a 40 million won rise following the announcement of the plan to develop Yeouido and Yongsan, and the recent plan to build a light rail in Mokdong prompted homeowners to withdraw plans to sell their apartments,” a property agent in Mokdong said.
The land ministry is vowing to toughen regulations.
“If the housing market shows signs of overheating or the rise expands to other regions, we will come up with additional measures quickly. We will also consider further supply plans for newlyweds and young people,” a land ministry official said.
The tax agency is also strengthening its tax audits on speculators while the financial regulator will examine whether those who purchase homes have violated the mortgage regulations such as the loan to value (LTV) and debt to income (DTI) ratios.
Those ratios restrict the amount of mortgages one can take out according to the value of the home or the income of the debtor. As more people purchase homes, the balance of mortgages increased by 6 trillion won in the second quarter from the previous quarter, pulling up the balance of total household debt to a record 1,493.2 trillion won.
“Demand is likely to slow down somewhat following the government's announcement of additional regulations as the housing prices have risen too steep recently,” said Lee Mi-yoon, a researcher at Real Estate 114.
In the long run, however, experts say the rise will continue unless the city takes action to stabilise the housing market.
“Seoul city’s development plans for Yeouido and Yongsan triggered the recent rise. These are long-term plans that will take at least 10 to 20 years for completion, but it was promoted as if they will be completed within the mayor’s term,” said Kwon Dae-jung, a professor at Myongji University.