Applications for land transaction permits in Seoul fell to their lowest level this year in August, as tight lending rules, back-to-back interest rate increases and the prospect of a revised tax overhaul pushed both buyers and sellers to the sidelines. The pullback has been sharpest in districts crowded with expensive apartments now facing heavier tax bills.
A total of 3,538 applications were filed across Seoul's 25 districts in August, according to the Saeol civil affairs portal, cited on the 2nd. That was about 35% below the 5,438 applications in July, which had itself been the low for the year.
Seoul recorded 6,702 applications in January and 5,138 in February, before the figure jumped to 10,165 in April as owners of multiple homes rushed to sell ahead of the expiration of a grace period on heavier capital gains taxes. Applications then fell back to the 6,000 range and stayed weak, and in August — the month the tax overhaul was announced — they failed to reach 4,000.
The drop was steepest in areas dominated by high-priced homes. Comparing April, the year's peak, with August, Seongdong-gu recorded the largest decline at 78.8%, with just 54 applications last month after monthly totals of roughly 100 to 220. Gangnam-gu fell 78.6%, Seocho-gu 77.9% and Songpa-gu 75.5%. Combined, the three southern districts went from 1,607 applications in April to 368 in August. By contrast, Dobong-gu was down 39.9% and Geumcheon-gu 38.5%, indicating that the freeze has been concentrated where expensive homes, and therefore exposure to lending curbs, are most prevalent.
Listings have piled up as supply increased after the tax announcement while transactions dried up. Apartment listings in Seoul rose from 60,409 on the 3rd of last month, when the tax package was unveiled, to 67,382 on the 1st, an increase of about 7,000 units, or 11.5%, according to the property data platform Asil. That marks a shift from June and July, when listings hovered in the low 60,000s even as transactions slowed.
Brokers on the ground point to the combination of strict lending rules and tax policy. "With mortgages unavailable, who has 3 billion to 4 billion won [about $2.2 million to $2.9 million] in cash?" said the head of one brokerage in Gangnam-gu's Gaepo-dong. "Sellers are cutting 200 million to 300 million won off market prices because nothing moves, and even then there are no takers." An agent at another brokerage in Seongdong-gu's Oksu-dong said that with Gangnam-area listings coming to market, "people want to trade up but can't sell their own homes, so deals are blocked in a chain."
Rising borrowing costs may deepen the freeze. The Bank of Korea's Monetary Policy Board raised the base rate by 0.25 percentage point in each of July and August, lifting it to 3.00% from 2.50%. The impact is expected to be greater in areas dominated by mid- and lower-priced homes below 1.5 billion won, where buyers rely more heavily on loans. An agent at a brokerage in Nowon-gu's Wolgye-dong said buyers in their 30s who borrow close to the 600 million won ceiling make up the core of demand there. "With rates climbing and even reaching that 600 million won limit now difficult, activity has quieted from before," the agent said. "Prices here are low enough that the tax changes matter little, but some owners are watching to see where the final version lands."
Analysts expect the lull to persist. Ham Young-jin, head of the real estate research lab at Woori Bank, said cumulative rate increases could limit buyers' purchasing power. "Home prices are high while rate hikes and caps on total household lending continue, so the slowdown in transactions looks set to last through the end of the year," Ham said.
The government said a day earlier that it would scrap a plan to reduce the basic deduction on the comprehensive real estate holding tax for owners of a single home they do not occupy, keeping the current standard in place. Some doubt that will revive activity. The basic deduction stays at 1.2 billion won and the cap on tax increases was returned to the current 150% rather than being raised to 200%, but with the broader push to tax multiple-home owners and expensive properties more heavily still intact — including the 1 billion won ceiling on capital gains deductions — buyers and sellers are likely to keep waiting each other out.
The head of a brokerage in Gaepo-dong said sellers who had planned quick discounted sales are reconsidering, now that the revised tax plan is milder than the original and has yet to clear the National Assembly. "Until the uncertainty clears, deals will be hard to close for anyone who isn't in a real hurry," the broker said.
