The government is reviewing whether to extend the land transaction permit zones set to expire at the end of the year, raising questions about the exit strategy for these regulations. Easing restrictions could lead to increased demand and rising home prices, while extending them could further suppress transactions and limit residential mobility for genuine buyers. Experts argue that rather than repeating blanket extensions or removals, there needs to be a framework for adjusting regulatory intensity based on local market conditions.
According to the real estate industry on October 18, the designation period for land transaction permit zones, which has expanded to cover all of Seoul and parts of Gyeonggi Province, is set to last until December 31. Hong Ji-seon, Minister of Land, Infrastructure and Transport, recently indicated during a parliamentary audit that there is some demand for the permit zones, leaving open the possibility of an extension.
The permit zones have had a dual effect of suppressing prices while also reducing transaction volumes. A study by Oh Ji-yoon, a researcher at the Korea Development Institute (KDI), found that the average sale price in regulated areas was approximately 3.95% lower than in comparable areas, while transaction volumes decreased by 31.82%.
Over time, the effects have changed. The decline in transactions was most pronounced in the first three to four months after designation, but this trend eased. The price suppression effect also weakened significantly from the second half of 2022. Other studies analyzing long-term designated areas have shown that the initial price suppression effects observed during the first designation and extension periods diminished considerably in subsequent extensions.
There is also the issue of demand shifting to areas outside the regulated zones. Prices in nearby regions were found to be 3.04% higher than in comparable areas, while transaction volumes were 9.70% lower. While it cannot be definitively concluded that the same balloon effect occurs in all regions, it highlights the need to consider the impact on surrounding markets when extending regulations.
A more significant concern is the lack of clarity regarding when regulations can be lifted. During the review of re-designation in Seoul in 2023, areas like Samseong-dong and Daechi-dong were classified as 'stable' based on quantitative assessments of land prices and transaction volumes. However, due to ongoing concerns about speculation related to development projects, they were deemed 'unstable' in qualitative assessments, resulting in the continuation of regulations.
Even if prices and transactions stabilize, it remains unclear how long regulations should be maintained if development projects are ongoing. There are no clear criteria for when some restrictions can be lifted, even if the market stabilizes before projects are completed.
Additionally, the differing regulatory periods across regions must be taken into account. Areas like Samseong, Cheongdam, Daechi, and Jamsil have undergone multiple extensions and adjustments since 2020, while newly designated areas last year have only about a year of regulatory application. Experts suggest that rather than applying the same criteria for blanket extensions to long-term and newly designated areas, recent price and transaction conditions, as well as development projects, should be evaluated separately.
Kim Hyo-seon, a senior real estate expert at KB Kookmin Bank's WM Star Advisory Group, warned that prolonged broad designations could hinder transactions for genuine buyers and reduce market liquidity. She emphasized the importance of flexible management, suggesting that stable areas should be considered for deregulation while maintaining restrictions in areas experiencing continued overheating.
Professor Ma Gang-rae from Chung-Ang University’s Department of Urban Planning and Real Estate also stressed the need to limit the permit zones to overheated areas as a temporary measure, advocating for clear criteria for designation and deregulation and flexible management.
There are also calls to adjust regulations starting with regions that are less likely to stimulate prices, such as mid-priced and genuine demand areas. Nam Hyuk-woo from Woori Bank's Real Estate Research Institute suggested that it may be necessary to partially lift permit zones in areas densely populated with homes priced below 600 million won.
* This article has been translated by AI.
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