Analysis by People Power Party lawmaker Lee Jong-wook

Home purchases in nearby unregulated areas jump 158.6%

Growth outpaces Seoul and Gyeonggi averages; stock proceeds also flow in

More than 15 trillion won flowed into unregulated areas of Gyeonggi Province bordering regulated zones over the past seven months, as the government moved to designate Hwaseong's Dongtan district and two other areas as regulated and land-transaction-permit zones. Pictured is a view of the new town in Dongtan district, Hwaseong, Gyeonggi Province. [Herald DB]
More than 15 trillion won flowed into unregulated areas of Gyeonggi Province bordering regulated zones over the past seven months, as the government moved to designate Hwaseong's Dongtan district and two other areas as regulated and land-transaction-permit zones. Pictured is a view of the new town in Dongtan district, Hwaseong, Gyeonggi Province. [Herald DB]

After the government's Oct. 15 measures last year designated all of Seoul and 12 areas of Gyeonggi Province as regulated zones — covering both adjustment target areas and speculative overheating districts — and land transaction permit zones, home purchases in the unregulated Gyeonggi areas bordering those zones more than doubled compared with the same period a year earlier.

People Power Party lawmaker Lee Jong-wook released an analysis Wednesday of housing acquisition funding plans submitted to the Ministry of Land, Infrastructure and Transport, showing that homes purchased in 18 adjacent Gyeonggi areas from November last year through May this year totaled approximately 15.59 trillion won ($10.1 billion). That marks a 158.65 percent increase from the roughly 6.03 trillion won recorded in the same period a year earlier.

The 18 adjacent areas examined are unregulated zones that share borders with the cities and districts designated as regulated or land-transaction-permit zones under the Oct. 15 measures. They include Guri, Namyangju, Gwangju, Yongin's Cheoin and Giheung districts, Suwon's Gwonseon district, Hwaseong's Dongtan and Byeongjeom districts, Gunpo, Anyang's Manan district, Siheung, Bucheon's Sosa and Wonmi districts, Bucheon's Ojeong district, Gimpo, Goyang's Deokyang district, Yangju and Uijeongbu. Hwaseong's Dongtan district does not directly border a regulated zone in administrative terms but was included given its proximity and significant market influence.

The 158.65 percent year-on-year increase in home purchase values across the 18 adjacent areas far outpaced growth rates recorded over the same period in Seoul (14.9 percent) and Gyeonggi Province as a whole (77 percent).

Three areas newly added to the regulated and land-transaction-permit zones in the government's announcement the previous day posted particularly sharp increases. Guri recorded 1.46 trillion won in home purchases from November last year through May, a 329.53 percent jump from the same period a year earlier. Yongin's Giheung district (1.98 trillion won) rose 191.82 percent, while Hwaseong's Dongtan district (4.33 trillion won) surged 214.96 percent.

A buoyant stock market also contributed to the surge in funding flowing into these areas. Proceeds from stock and bond sales accounted for 4.85 trillion won of the financing reported in the 18 adjacent areas from November last year through May, a 531.59 percent increase from the same period a year earlier — far exceeding gains in Seoul (149.19 percent) and Gyeonggi Province as a whole (325.47 percent) over the same period.

Guri posted the largest increase in stock and bond sale proceeds, with 39.1 billion won — up 1,028.77 percent from a year earlier. Hwaseong's Dongtan district (185.1 billion won) rose 678.03 percent, and Yongin's Giheung district (62.4 billion won) climbed 450.69 percent.

With the government placing Guri, Hwaseong's Dongtan district and Yongin's Giheung district under a triple layer of restrictions, the three areas will now be subject to tightened rules spanning mortgage lending, taxation and apartment subscriptions.

The loan-to-value ratio for households without a home — including those with one home subject to a disposal condition — will be tightened from 70 percent to 40 percent, while homeowners with existing properties will be barred from taking out mortgage loans altogether. Mortgage loan ceilings will be set at 600 million won for homes valued at up to 1.5 billion won, 400 million won for homes priced between 1.5 billion won and 2.5 billion won, and 200 million won for homes above 2.5 billion won.

In regulated zones, capital gains tax surcharges on multi-home owners will be set at 20 percentage points above the standard rate of 6 to 45 percent for owners of two homes, and 30 percentage points above for those with three or more — with the long-term holding deduction eliminated entirely. The one-household, one-home capital gains tax exemption will require two years of residency in addition to the existing two-year ownership requirement. Acquisition taxes will be levied at 8 percent for owners of two homes and 12 percent for those with three, and private rental housing will no longer be excluded from the comprehensive real estate tax base. For redevelopment and reconstruction projects, transfers of union membership rights will be prohibited after the union establishment approval stage for reconstruction and after the management and disposal plan approval stage for redevelopment.

Real estate market observers expect the expanded regulated zones to trigger a balloon effect, pushing demand into surrounding unregulated areas. Kwon Dae-jung, a chair professor in the Department of Economics and Real Estate at Hansung University, said buyers are likely to move toward lower-priced unregulated areas, where new move-in supply is limited and lending conditions are less restrictive. "In particular, if demand shifts to second-generation new towns such as Byeongjeom district — which offers easy commutes to the semiconductor belt — and Gimpo, which has good access to Seoul, jeonse and monthly rent prices in those areas could also rise," he said.


lucky@heraldcorp.com