A couple in their 30s who married in June last year had saved 100 million won each, giving them 200 million won in seed money. Before the wedding they considered buying a 600 million won home in Bundang, Seongnam, in Gyeonggi Province, but held off because they would have had to borrow 400 million won. A year later, the apartment they had been watching costs 1.2 billion won.
"I should have bought a home right after the Oct. 15 measures, even if it meant panic buying," said A, one of the newlyweds. "Instead of buying, we moved into a jeonse unit, and even jeonse prices are climbing steeply." (Jeonse is a Korean lease system requiring a large lump-sum deposit instead of monthly rent.)
A year after the Oct. 15 measures, home prices have risen faster, not slower. Seoul apartment prices rose 10.42% from the third week of October last year, immediately after the measures, through the first week of this month, according to the Korea Real Estate Board. That is 1.6 times the 6.61% gain recorded in the year before the measures.
Curbs on Seoul Pushed Demand to Dongtan, Then to Gwonseon and Byeongjeom
The gains spread to cheaper areas as buyers sought to avoid lending restrictions. Within Seoul over the same period, mid- and lower-priced districts topped the rankings: Seongbuk at 16.52%, Seodaemun at 14.40%, Gangseo at 14.39% and Guro at 13.69%. That contrasts with Gangnam and Seocho, which rose just 1.40% and 3.35%. Widening the view to Gyeonggi Province makes the spillover clearer: apartment prices there went from a 0.33% gain to a 6.57% gain over the same period.
The Oct. 15 measures placed all of Seoul and 12 locations in Gyeonggi Province, including Gwacheon, Gwangmyeong and Bundang in Seongnam, under regulated-zone status and land transaction permit rules. Demand shifted to Dongtan in Hwaseong, Giheung in Yongin and Guri, which escaped the restrictions. The government designated those three as additional regulated zones on June 30 this year. At the time of the Oct. 15 measures, officials had said demand was unlikely to move to other areas. That forecast proved wrong.
The heat kept moving to unregulated areas bordering regulated ones. From June 29, just before the additional designations, through the 5th of this month, Gwonseon in Suwon rose 5.58%, Byeongjeom in Hwaseong 4.69%, Gunpo 4.63% and Manan in Anyang 3.36%, all above the Gyeonggi average of 2.58%, Korea Real Estate Board figures showed. Gwonseon's gain nearly matched that of Dongtan, a regulated zone, at 5.61%, and its 11.89% rise over the year since the Oct. 15 measures exceeded the Seoul average of 10.42%.
Owner-Occupancy Rules Cut Jeonse Listings by More Than 10%
Rents rose even faster. Seoul jeonse prices gained 9.96% in the year after the Oct. 15 measures, more than four times the 2.41% rise in the preceding year. In Gyeonggi Province the increase widened to 6.89% from 1.28%.
Behind the jump is a sharp drop in available units tied to owner-occupancy requirements. As of the 10th, Seoul had 20,331 apartment jeonse listings, down 12.4% from 23,192 a year earlier, while monthly-rent listings fell 9.3%, according to property data provider Asil. The decline in Gyeonggi Province was steeper. Jeonse listings stood at just 12,425, down 36.0% from a year earlier, and monthly-rent listings were nearly halved, falling to 7,745 from 14,302.
In land transaction permit zones, buyers cannot purchase a home unless they intend to live in it, closing off the route of buying a property with a tenant's jeonse deposit in place and renting it out. When a buyer purchases a home occupied by a tenant and moves in, that rental unit disappears from the market. Units held by registered rental business operators are another variable. Under a tax revision announced in August, the exemption from heavier capital gains taxes and the preferential long-term holding deduction for purchased rental apartments in adjustment target areas will apply in full only to transfers through the end of 2027. The government expects 68,000 units in Seoul alone to come onto the market as a result, and if those homes are sold to owner-occupiers, the supply of rental units will shrink further.
More tenants are also staying put. Renewal contracts accounted for 58.9% of Seoul apartment jeonse transactions in August, up 15.2 percentage points from 43.7% a year earlier, according to the Seoul Metropolitan Government. More tenants remaining in their current homes means fewer jeonse units available to newlyweds or households changing jobs. Tenants who have used their right to request a renewal must find a new home after four years, which could push more households into monthly-rent arrangements.
The government has left open the possibility of extending the land transaction permit system, which is set to expire at the end of this year. Land Minister Hong Ji-sun said at a parliamentary audit that there is "a certain level of demand for the permit system." Experts counter that the system has failed to achieve its original goal of stabilizing home prices while adding to instability in the rental market. "The rental market needs a two-track approach combining public and private supply, but the permit system has devastated the private rental market, and side effects have followed one after another," said Suh Jin-hyung, a professor at Kwangwoon University.
Calls to Restore Predictability in Regulation
A year into the Oct. 15 housing measures, analysts say stabilizing the market will require both stronger execution of supply expansion and a return to predictable regulation. Curbs centered on suppressing demand cannot resolve price instability caused by a supply shortage, and the land transaction permit system has grown complicated through a series of exceptions and deferrals, adding to market confusion. Supply should move faster, they say, while regulation should be fine-tuned to market conditions.
In its Jan. 29 measures this year, the government said it would supply about 60,000 homes using public land in the greater Seoul area, including the Gwacheon racecourse and Taereung Country Club. In supply measures announced on Sept. 7 last year, it pledged to break ground on 1.35 million homes in the capital region by 2030. The target for construction starts in the capital region this year alone is 268,000 homes. In September it also unveiled a housing stability plan to supply 1.19 million public housing units by 2030.
There is a wide gap, however, between supply targets and the point at which homes actually reach the market. Housing construction starts in the capital region totaled 86,739 units in the first eight months of this year, up just 1.5% from a year earlier. Hong, the land minister, said this year's target for construction starts would be difficult to meet, projecting completion at 80% to 88% of the goal. Given the time needed to finish construction after breaking ground, medium- and long-term supply plans alone cannot ease the immediate imbalance. Analysts say permitting and project timelines for redevelopment need to be shortened, while obstacles that delay private developers from breaking ground, such as construction costs and financing burdens, must also be addressed.
Supplementing policy to normalize transactions of existing homes and ease pressure in the rental market is another task. "What matters is whether this is desirable for low- and middle-income households," Choi Byung-chun, an adjunct professor at Myongji University, wrote recently on social media. "The longer the permit system is extended, the more jeonse and monthly rents will jump, and the heavier the housing cost burden on low- and middle-income households will become."
Repeated exceptions and deferrals surrounding the owner-occupancy requirement for homes with tenants have raised questions about the predictability of the permit system. In February the government temporarily deferred the owner-occupancy requirement for homes with tenants to help multiple-home owners sell, then in May expanded the scope to cover homes with tenants in general, including owners of a single home who do not live in it. In September it extended the deadline for deferral applications to the end of next year and decided to recognize one renewal contract as well. The steps are intended to protect tenants and revive transactions, but the successive adjustments to the underlying rules have made the system harder for buyers, sellers and even administrative authorities to understand and apply. To prevent buyers from postponing decisions in anticipation of further easing, the conditions and standards for deferrals should be clarified and the predictability of policy changes improved.
Regulation also needs to be reorganized to reflect local conditions. Dongtan in Hwaseong, Gyeonggi Province, which was added to the designated zones this year, was placed under land transaction permit rules as an entire district, even though apartments of the same size near Dongtan Station cost more than twice as much as those on the outskirts. With spillover effects appearing in neighboring areas, analysts say uniform regulation should give way to measures refined according to conditions in each area.