The government has expanded the residency grace period for properties in land transaction permit zones, but loan regulations remain unchanged, keeping the barriers high for homebuyers without property. While the path to purchasing homes with tenants has widened, buyers whose funds are tied up in rental deposits face challenges in securing the necessary funds for closing.
According to the Ministry of Land, Infrastructure and Transport, the application deadline for the residency grace period for rental properties in land transaction permit zones has been extended by one year, from the end of this year to December 31, 2027. In addition to the remaining period of existing lease contracts, one renewal contract of up to two years will also be recognized as a valid reason for the grace period. The ministry plans to implement this on October 1, allowing for occupancy by 2029 at the latest if the renewal contract is recognized.
However, delaying occupancy does not mean buyers can postpone property acquisition. Buyers must acquire the property within four months of receiving approval. They must also maintain their status as non-homeowners since May 12 of this year and are required to reside in the property for two years after actual occupancy.
Loan regulations that restrict funding remain unchanged. In regulated areas, the loan-to-value (LTV) ratio for general non-homeowners who do not qualify for preferential treatment is set at 40%. The total debt service ratio (DSR) and limits on total loan amounts based on property prices also apply, meaning the actual loan amount may decrease based on the borrower's income and existing debts.
The proportion of residency grace period applications among all land transaction permit applications has not been significant. According to the city of Seoul, there were 135 applications for residency grace periods for apartments in August, accounting for 4.5% of the total 3,012 applications. Although the number of grace period applications decreased by 34.8% from the previous month, the overall number of applications also fell by a similar margin, keeping the proportion the same. However, the total applications include cases that do not require a grace period, such as immediate occupancy.
Transferring a tenant's deposit reduces the immediate cash payment to the seller. However, for non-homeowners who must continue living in another rental property, the situation changes. Most of their assets may be tied up in the deposit of their current residence, making it difficult to use for down payments or closing costs.
For example, to purchase a house priced at 650 million won with a deposit of 300 million won, even if the deposit is transferred, the buyer would still need to secure an additional 350 million won, excluding ancillary costs. Unlike buyers with cash reserves, those whose funds are tied up in their current rental deposits may require separate financing.
This means that the impact of the new measures may differ between households with sufficient liquid assets and those whose assets are mostly tied up in rental deposits.
Moreover, the deposit transfer and mortgage loan limits cannot simply be added together. Properties with tenants have their deposits and priority of claims affecting loan assessments. The transferred deposit is also money that must be returned to future tenants, necessitating the preparation of funds for repayment at the time of occupancy.
Lee Eun-hyung, a researcher at the Korea Construction Policy Institute, stated, “It is unlikely that the extension of the grace period will lead to an immediate increase in transaction volume.”
First-time homebuyers or those meeting criteria for low-income and genuine demand may qualify for relaxed loan standards compared to general borrowers. However, not all non-homeowners are eligible for preferential treatment. The potential loan amounts can vary even among non-homeowner buyers based on their past homeownership history, income, and property prices.
On the other hand, there are evaluations that this measure effectively broadens the range of transactions for properties with tenants. By recognizing renewal contracts, it increases the possibility of buying and selling homes while allowing existing tenants to continue residing. However, renewal contracts must be signed before the grace period application and the renewal period must start within the application period to be recognized. Not all tenants automatically have their residency period extended by two years.
Kim Hyo-sun, a senior real estate expert at KB Kookmin Bank, commented, “The intention seems to be to resolve the mismatch caused by the land transaction permit system blocking properties that would come onto the market due to tax reforms, while also allowing properties with tenants to remain available for rent.” However, she pointed out that for actual transactions to occur, transaction regulations also need to be considered.
* This article has been translated by AI.
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