Suspected gap investment deals — buying a home while a tenant's jeonse deposit covers most of the price — in Seoul fell by nearly 70% after the Oct. 15 housing market stabilization package last year placed the entire city under land transaction permit zones.
The drop appears to reflect a sharp squeeze on investment demand for homes bought with a tenant's deposit, as the permit zone designation tightened residency requirements and a tax code overhaul raised lending hurdles for homes the owner does not live in. Even so, with the rental market tightening, buyers in their 20s and 30s, who have less capital, showed a clearer tendency than other age groups to take a last chance at buying a first home even if it meant using gap investment.
The Seoul Economic Daily analyzed relevant transactions in Seoul's 25 districts through the office of Rep. Kang Deuk-gu of the Democratic Party of Korea, a member of the National Assembly's Land, Infrastructure and Transport Committee. The analysis, released on the 5th, showed that suspected gap investment deals totaled 7,579 in the year through Oct. 15 last year but came to just 2,442 over the following 11 months or so, a decline of 67.8% in little more than a year.
The analysis covered transactions in which both a rental deposit and a loan from a financial institution were recorded and the buyer listed the occupancy plan as "rental." The data do not capture all gap investment, but they were classified as suspected gap investment deals because they illustrate a purchase method that minimizes the buyer's own funds and covers the rest with a rental deposit.
Under the Oct. 15 package last year, the government designated all 25 Seoul districts and 12 areas in Gyeonggi Province as land transaction permit zones, adding Dongtan in Hwaseong, Guri and Giheung in Yongin from July 5 this year. Buying a home inside a permit zone requires approval from the local authorities before signing a contract, and the buyer is in principle subject to a residency requirement.
Most districts also saw steep declines. Deals fell in 23 of Seoul's 25 districts, with the exceptions of Jungnang (up 83.3%) and Geumcheon (up 130.8%). Seongdong District posted the steepest drop, down 88.4% to 92 deals from 793, while declines of around 80% were recorded in Mapo (down 79.7%), Nowon (down 79.6%), Gangdong (down 78.3%) and Gangnam (down 76.2%).
Transaction volumes declined across every age bracket. Suspected gap investment deals by buyers in their 30s fell 65.1%, a steeper drop than the 18.6% decline among those in their 20s, while deals fell 76.4% among those in their 40s, 69.5% among those in their 50s and 54.6% among those 60 and older. Although absolute volumes fell in all age groups, buyers in their 20s and 30s pulled back less sharply than those in their 40s and 50s.
The shares of total deals are especially notable. Buyers in their 30s accounted for 43.3% of all suspected gap investment deals in the year before the Oct. 15 package, but their share rose to 46.8% afterward. The share held by buyers in their 20s also more than doubled, to 7.9% from 3.1%. That suggests younger buyers, who have relatively little capital compared with home prices, are still turning to gap investment to purchase homes. Buyers in their 20s and 30s with limited capital inevitably rely more heavily on loans and rental deposits. Rising demand for homes priced at 1.5 billion won ($1.1 million) or less, which qualify for loans of up to 600 million won ($430,000), is attributed to the same reason.
The decline in suspected gap investment deals cannot be credited to the permit zone designation alone, but the government's aim of making investment purchases harder by tightening residency requirements and curbing the use of rental deposits and loans as leverage is showing some effect.
The findings are expected to influence a decision at the end of the year on whether to extend the permit zone designations. Land, Infrastructure and Transport Minister Hong Ji-sun said at a confirmation hearing last month that a decision on extending the designations covering all of Seoul and other areas would come after a close review of market conditions. The government has recently been pursuing both goals at once — protecting owner-occupier buyers while blocking speculation — expanding grace periods on the residency requirement to allow transactions involving homes currently under lease, while maintaining requirements that buyers not already own a home and live in the property for two years. The ministry said last month that it would extend the grace period on the residency requirement to cover renewal contracts while keeping its principle of blocking gap investment.
