Korea Adds Three More Areas to Land Transaction Permit Zones

The government on Monday designated additional areas as regulated zones—adjustment target areas and speculative overheated districts—as well as land transaction permit zones. The newly added areas are Dongtan in Hwaseong, Giheung in Yongin, and Guri, all in Gyeonggi Province. These are areas where housing prices have surged sharply, driven by the "balloon effect" of strict regulations imposed on 12 districts in Seoul and Gyeonggi Province following last year's "October 15 Real Estate Measures," combined with a semiconductor boom. Dongtan, a representative semiconductor "shuttle-station district" (a combination of shuttle bus access and proximity to subway stations), recorded a cumulative apartment sales price increase of 11.38% from the beginning of this year through the fourth week of June—the highest in the nation. Apartment prices in Guri and Giheung also jumped 7.87% and 6.21%, respectively, this year. This is why the Ministry of Land, Infrastructure and Transport (MOLIT) and Gyeonggi Province have moved to expand the real estate "triple regulatory net" by tightening loans and blocking gap investment.

However, attempting to suppress already-soaring housing prices through regulation could result in a repeat of past failures. While buying sentiment and transaction volumes may shrink temporarily, past regulatory policies have repeatedly confirmed that regulations curbing demand fail to prevent price increases and instead trigger only a "balloon effect," shifting demand to non-regulated areas. Moreover, in additional regulated areas such as Dongtan, where genuine demand from high-income semiconductor industry workers is solid, regulation alone is highly likely to be insufficient to rein in prices. There are also many concerns that if jeonse (a Korean lease system requiring a large lump-sum deposit instead of monthly rent) listings decline due to the residency requirement applied under land transaction permit zone designation, the jeonse and monthly rent crunch will worsen, only adding to housing insecurity for ordinary citizens.

If the government cannot escape the vicious cycle in which strong regulations suppress the market, prices in other areas surge, and the government then tightens with even stronger regulations, real estate stability will remain elusive. While the government clings to demand-suppression regulations of questionable effectiveness, housing supply—which can be called the fundamental solution to housing stability—has frozen. Nationwide housing completions from the beginning of this year through May plunged 46.7% from a year earlier, falling below 100,000 units. Under these conditions, it is difficult to have faith that housing prices will stabilize downward over the medium to long term. For the Presidential Office's message that "houses must be built no matter what" not to end up as empty rhetoric, the government must first hurry to secure sufficient housing supply by cooperating with local governments and boldly easing regulations on private redevelopment projects.