Measures expand regulated areas to prevent balloon effects, include loan rules and tax reforms

Kim Kyu-cheol, Director-General of the Ministry of Land, Infrastructure and Transport's Housing and Land Division, said on the 15th after announcing the "Housing Market Stabilization Measures" that "by designating land transaction permit zones alongside regulated areas, we have fundamentally blocked the means to mobilize funds through gap investment (buying and selling with jeonse leases)."

Director-General Kim explained the difference from the Moon Jae-in administration, which had announced many real estate policies, during a press briefing held after the announcement of the "Housing Market Stabilization Measures" at the 3rd floor of the Government Complex Seoul in Jongno-gu, Seoul that day.

Director-General Kim said, "The current real estate market situation has formed anxiety due to concerns about supply-demand imbalances and additional interest rate cuts, leading to a concentration of demand and a sharp rise in prices in a short period. If the market is not managed in a timely manner, we judged that anxiety could spread further, so we created comprehensive measures including the designation of regulated areas and land transaction permit zones, additional loan regulations, and future tax reform plans."

The following is a Q&A with Kim Kyu-cheol, Director-General of the Ministry of Land, Infrastructure and Transport's Housing and Land Division, Shin Jin-chang, Director-General of the Financial Services Commission's Financial Policy Bureau, and Kim Byung-chul, Head of the Ministry of Economy and Finance's Property and Consumption Tax Policy Division.

-Will the Lee Jae-myung administration, like the Moon Jae-in administration, announce many real estate policies?

Director-General Kim Kyu-cheol: "In the past (Moon Jae-in administration), when designating regulated areas, measures were announced by expanding adjustment target areas and speculative overheating zones step-by-step from 2016 to 2021. There were limitations to the effectiveness of the measures as additional balloon effects occurred in areas not designated. This time, we designated a wide area to prevent possible balloon effects in the future and believe the effect will be significant by also designating land transaction permit zones."

-You have effectively signaled a further strengthening of real estate holding taxes. What are your thoughts on the possibility of housing prices rising rapidly in the short term?

Director-General Kim Kyu-cheol: "Since regulated areas and land transaction permit zones have been comprehensively designated across Seoul and 12 areas in Gyeonggi Province, they will have a significant effect on market stabilization. We do not believe the future tax reform will necessarily have a negative impact."

-In the June 27 measures, the loan regulation limit was uniformly set at 600 million Korean won, but why was it applied differently based on housing market prices in this measure?

Director-General Shin Jin-chang: "Adjusting loan limits is based on the principle of preemptive approaches, considering how much loans are used for housing purchases depending on market conditions. When announcing the June 27 measures, the real estate market had various upward factors, and loan demand was increasing in the first half of this year. To stabilize the market preemptively, we set a 600 million Korean won loan limit, which did not exist before, and aimed to reduce the scale of loans used. This clearly had a certain effect, as the trend of loan growth slowed significantly.

Recent housing price increases are centered on high-priced homes and spreading to surrounding areas of Seoul. To manage demand for housing purchases using loans more meticulously, we judged it appropriate to set loan limits targeting high-priced homes, as prices are rising mainly in that segment."

-There is criticism that loan regulations target the working class and middle class. What are your thoughts?

Director-General Shin Jin-chang: "Loan limit regulations do not apply to homes priced at 1.5 billion Korean won or less. The basic idea is not to inconvenience the working class and middle class in purchasing homes using housing finance. At least, we aim to prevent situations where loans excessively drive up housing prices. If housing prices stabilize, the working class and middle class can smoothly purchase homes through appropriate finance linked to their income, contributing to their housing stability."

-If the loan-to-value (LTV) ratio of 40% is applied to homes priced at 1.5 billion Korean won or less in outlying areas of Seoul, along with stress debt service ratio (DSR), won't it be difficult for young people and newlyweds with fewer assets to buy their first home?

Director-General Shin Jin-chang: "Since outlying areas of Seoul do not have many homes exceeding 1.5 billion Korean won, they are not directly subject to loan regulations. This measure does not restrict policy mortgages for young people and newlyweds, such as the Stepping Stone Loan and the Nest Egg Loan."

-Won't the strengthened regulations on reconstruction and redevelopment in designated regulated areas shrink housing supply in urban areas?

Director-General Kim Kyu-cheol: "Restricting the transfer of redevelopment project-related statuses aims to prevent speculative demand, so it is difficult to say it is directly related to supply contraction. We plan to carry out urban supply without delay through follow-up measures to the September 7 measures."

-What are the authority and scale of the real estate illegal activities supervision body under the Prime Minister?

Director-General Kim Kyu-cheol: "Discussions on the specific scale and organizational personnel are still ongoing. Unlike the existing body within the Ministry of Land, Infrastructure and Transport, which was limited to monitoring and investigating the real estate market and transactions, we plan to strengthen supervision authority and grant functions that can be linked to actual investigations."

-Did you consult with Seoul Metropolitan Government regarding the additional designation of land transaction permit zones? Why was the price cap system for private housing sites maintained?

Director-General Kim Kyu-cheol: "We consulted in advance with Seoul Metropolitan Government and Gyeonggi Province. Both governments share concerns about the current market situation and agree with the designation of speculative overheating zones, adjustment target areas, and land transaction permit zones as strong regulatory measures. We judged that the price increase was due to housing price rises from sales transactions, not related to sale prices. We believe there are separate aspects to review regarding the price cap system in the future."

-Why was the land transaction permit zone's validity set until the end of next year? What are your thoughts on the criticism that applying an LTV of 40% is a double regulation?

Director-General Kim Kyu-cheol: "We judged it appropriate to align the designation of land transaction permit zones across Seoul with the existing expiration date for Gangnam's three districts. We can review extensions depending on future market conditions."

Director-General Shin Jin-chang: "Even if the LTV limit drops from 70% to 40% due to the designation of regulated areas, the loan limit for homes priced at 1.5 billion Korean won or less remains the same as before, at 600 million Korean won. Since outlying areas of the capital region do not have many homes exceeding 1.5 billion Korean won, we do not see a concerning situation."

-Do you have statistics on loans and housing by price range?

Director-General Shin Jin-chang: "Since the volume by price and loan segments changes frequently, disclosing figures could stimulate market anxiety, making it difficult to release them."

-Does the Lee Jae-myung administration's 'housing stability' refer to a slowdown or decline in housing price increases?

Director-General Kim Kyu-cheol: "Housing stability is not simply about rising or falling prices but about suppressing anxiety and stabilizing living conditions. The price increases that started in Gangnam's three districts, Mapo, Yongsan, and Seongdong have spread to areas near the Han River, across Seoul, and into Gyeonggi Province. The core goal is to block this anxiety."

-The Deputy Prime Minister mentioned taxes as the 'last resort.' Why start reviewing taxes?

Policy Officer Kim Byung-chul: "Taxes should be approached cautiously but can be used if necessary. This time, we only presented the policy direction, and specific measures like adjusting holding and transaction taxes, considering market impact and tax equity, will be prepared by forming a task force."

-If all of Seoul is designated as a land transaction permit zone, won't there be concerns about a decrease in jeonse listings? Are there plans to further ease redevelopment projects or improve the price cap system?

Director-General Kim Kyu-cheol: "There are concerns that jeonse listings may decrease due to the two-year residency obligation under the land transaction permit system. However, the effect of existing homes being listed for sale when converting to residency will not be significant. As the September 7 supply measures require time, we will thoroughly manage implementation results through a supply measures monitoring task force and announce follow-up supply measures with specific locations, including old government buildings, within this year."

Director-General: Regulated Areas, Land Zones Block Gap Investment