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| Land, Infrastructure and Transport Minister Kim Hyun-mee, center, speaks during a briefing at the Seoul Government Complex in Gwanghwamun, Wednesday. / Yonhap |
By Lee Kyung-min
The government said Wednesday that it was designating Daejeon and Cheongju as "overheated speculation zones," and almost all of Gyeonggi Province, which surrounds the capital as a "regulated zone," as part of strengthened measures to curb real estate speculation.
It also decided to tighten lending rules to curb excessive demand for home-backed loans and mortgages.
The measures, the 21st series rolled out by the Moon Jae-in administration, come as the housing market is recently showing signs of heating up following months of cooling down amid the COVID-19 pandemic. The measures announced by the Ministry of Land, Infrastructure and Transport will take effect Friday.
The government said it will increase the number of "overheated speculative zones" to 48. In such zones, toughened lending rules will be applied.
It will also regulate land trading near areas with new development plans, to prevent a spike in the land price fueled by seekers of short-term gains based on short-term market information.
Overall lending rules will be tightened to prevent so-called "gap investments," a popular investment strategy using Korea's unique jeonse system under which a tenant makes a lump-sum deposit instead of monthly rent. Using this method, investors can buy homes by investing smaller amount than the home price by using the jeonse deposit a home buyer will receive.
Also to be tightened are lending and tax regulations on corporate bodies owning homes, a frequently used tax avoidance scheme by owners of expensive home that exploits the legal "loophole" under which corporations are exempt from heavy taxes.
The government said previously announced measures for stricter lending rules and heavier tax on expensive homes yet to pass the National Assembly will soon be made into law to ensure policy consistency.
Those seeking to buy homes in the newly regulated areas will not be able to avoid heavy taxes unless they live in the property for at least two years, a strengthened rule from the status quo whereby just owning it for two years sufficed.
Under the new measures, a person is only allowed one primary residence; if a person owning a home buys a second home, he or she must sell the other within six months of the purchase to not incur taxes.
Up to a 62 percent tax will be imposed on additional homes, with the tax rate adjustable according to the number of homes.
Property tax on homes worth over 900 million won ($741,000) will be raised to between 0.6 percent and 3.2 percent from the current 0.5 percent to 2.7 percent. This will be applied to owners with two or more homes in the newly regulated area.
Home-backed loans will be banned for those buying homes worth 1.5 billion won or over in "overheated speculative zones" including Suwon and some areas in Gyeonggi Province and Incheon among others.
Seoul Digital University professor of real estate Lee Young-soo said the policy simply is and will continue to be ineffective.
"The price will not come down as long as demand exists. What other ways are there to make money when the deposit rate is less than 1 percent? The expansionary monetary policy coupled with people's desire seeking asset value increase will continue to jack up home prices."
Data from the Korea Appraisal Board showed that in the second week of June, apartment prices in Seoul inched up 0.02 percent from the week before, breaking the downtrend that has continued for 13 weeks since March.
It also came after a continued rise in homes traded and rented by corporate bodies since 2017.
Ministry data showed homes traded by corporations jumped to 33,000 in December 2019 from 23,000 in December 2017 whereas those rented increased to 49,000 from 42,000 in the same period.
Apartments bought by corporate bodies accounted for only 1 percent of the total in 2017 but it soared to 6.6 percent in 2020.
Some 72 percent of homes traded in Gangnam, southern Seoul, where apartment prices have soared over the past decade, are believed to be have been made by speculative forces seeking short-term windfall gains, up 15 percentage points from earlier in 2020, the ministry said.
"The record-low interest rate-driven liquidity has led to the property market overheating as of late," Land Minister Kim Hyun-mee said during a briefing at the Seoul Government Complex in Gwanghwamun.
"Speculation-oriented apartment price spikes result in greater difficulty experienced by those seeking to buy homes. The government measures will seek to stabilize the property market thereby helping improve the chances of people being able to have a home."
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