The government's suggestion to extend the land transaction permit zones, which are set to expire at the end of this year, has reignited discussions about the effectiveness of these regulations. Concerns about transaction declines, demand shifts to non-regulated areas, and instability in the rental market have prompted calls for a reevaluation of the regulations' efficacy.
On October 18, Ajou Economics analyzed research papers on past cases of the land transaction permit system (LTPS), revealing that as the regulation has persisted, its effectiveness in suppressing housing prices has diminished. Following the lifting of the regulation, price increases have also been observed, indicating that both extension and removal carry significant burdens.
Introduced in 1979, the LTPS requires buyers to obtain permission from local governments to purchase land for personal residence, thereby limiting speculative investments where buyers purchase properties while renting them out. Hong Ji-seon, Minister of Land, Infrastructure and Transport, stated during a National Assembly audit on October 7 that there is a certain level of demand for the LTPS.
Last year, on October 15, the government announced an expansion of the LTPS to cover all of Seoul and 12 areas in Gyeonggi Province. This regulation took effect on October 20 and is set to last until December 31 of this year.
Areas such as Samsung, Cheongdam, Daechi, and Jamsil-dong were designated as land transaction permit zones in June 2020, with extensions granted annually. According to an analysis by Yang Ji-young, a specialist at Shinhan Premier Pathfinder, as of January 2025, apartment prices in these regulated areas were estimated to be 9.6% lower than they would have been without regulation. The price suppression effect peaked at an average of 11.1% between 2022 and 2023 but decreased to 7.9% from January 2024 to January 2025. Average transaction volumes before and after the designation dropped by 62.6% in regulated areas and 50.6% in comparison areas.
The results also indicate a so-called 'balloon effect,' where demand shifts to non-regulated areas. In Yang's study, additional price increases were estimated in non-regulated comparison areas such as Seongsu-dong 1-ga (26.86%), Banpo-dong (8.92%), Sinsa-dong (5.92%), and Jamwon-dong (5.12%) compared to hypothetical scenarios without regulation. The study interpreted this as demand concentrating not just near regulated areas but also in locations with high development expectations.
On February 13 of last year, the Seoul city government lifted the LTPS for apartments in certain redevelopment projects in Samsung, Cheongdam, Daechi, and Jamsil-dong. However, as concerns over overheating prices grew, the regulation was reinstated on March 24, expanding to include apartments in the three districts of Gangnam and Yongsan.
While the LTPS has shown to suppress sales transactions, its impact on stabilizing the rental market remains unclear. According to a paper by Moon, changes in sales prices and transaction volumes were observed during the lifting and reimposition of the LTPS, but consistent price responses in the rental market were not confirmed.
Experts also point out that relying solely on the LTPS to stabilize housing prices and the rental market has its limitations. Yoo Seon-jong, a professor at Konkuk University, noted that while there was a market suppression effect when applied to specific areas like Gangnam, this effect diminished when the regulation was expanded to all of Seoul. He added that the balloon effect, where demand shifts to excluded areas, is also evident, predicting that the government is likely to extend the LTPS at the end of this year due to concerns about the market impact of lifting the regulation.
Yang's research indicated that the obligation for actual residence due to expanded regulations has led to a reduction in rental supply, resulting in rising rental prices and a shift in buying demand to outer regions. He emphasized that the recent price increases in areas outside Seoul and parts of Gyeonggi Province are largely influenced by actual demand due to a shortage of rental properties rather than speculative demand.
Go Jun-seok, a professor at Yonsei University's Sangnam Institute of Management, highlighted the seriousness of the shortage of rental listings, stating that extending the LTPS will not effectively stabilize housing prices and the rental market. He further suggested that the government should also consider easing regulations affecting the housing market, such as taxation on non-resident homeowners and the registration of rental business operators.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.