Overseas Land Purchase Limits Lifted

Individual investors in Korea will be allowed to buy overseas real estate within a limit of $1 million from May 22. Until now, individual Koreans could not purchase property overseas except for the purpose of residence.

The Ministry of Finance and Economy unveiled its measures to liberate foreign currency yesterday. According to the measures, individual investors will be allowed to buy houses overseas such as in the U.S., China, Thailand and Australia regardless of the number of transactions if the total amount of remitted money does not exceed $1 million. As the limit on the amount of remittance is not by household but by individual, if a household has more than two persons who have means to buy property, the remittance limit can exceed one million dollars per household.

Kwon Tae-gyun, the ministry’s international financial bureau chief, said, “The government will phase out the limits on purchasing overseas real estate by 2008 to 2009.” Those who bought overseas property will be required to submit documents verifying ownership every two years after acquisition of the property. This is to prevent tax evasion of property owners through giving the property to their children living overseas. When selling the property, the owners must report it to corresponding banks, and they must transfer the money back to Korea.

The ministry also decided to extend the current loan limit for foreigners in domestic banks from 1.0 billion to 10 billion won from May 22 in an effort to make the Korean won an international currency.

In order to attract more foreign investment in domestic bonds marked in Korean won, the government plans to lower the withholding tax rate of bond interest income from the current 25 to 14 percent during the second half of the year.

Jeong Yeong-sik, chief researcher at Samsung Economic Research Institute, said, “I wonder whether foreign investors would want to put their money in financial products marked in Korean won given Korea’s volatile stock market condition and lower coupon rates than in the U.S.”

Sun-Woo Kim legman@donga.com sublime@donga.com