Speculation Rules Cover All of Seoul

The five Gangbuk wards of Nowon, Dobong, Dongdaemun, Seodaemun and Jungnang-gu were designated as housing speculative zones in a government announcement on Tuesday, which essentially places the entire city of Seoul under government speculation regulations.

This means homeowners in any area of Seoul will now have to pay capital gains taxes when they sell their homes based on actual transaction value, not the previous tax standard value.

The government has also decided to completely reconsider the plan to offer apartments for sale after finishing construction, which was to go into effect starting next year for apartments built on public plots.

Vice Minister of Finance and Economy Park Byeong-won hosted a committee meeting to stabilize real estate prices at the Bank Center in Myeong-dong, downtown Seoul Tuesday. A total of ten areas were added to the housing speculation list at the meeting: the aforementioned five wards, Bupyeong-gu and Yeonsu-gu in Incheon, Siheung-si in Gyeonggi-do, Dong-gu and Buk-gu in Ulsan.

Aside from having to pay capital gains taxes on a real transaction value-basis, owners of homes in speculative zones will only be allowed to take out mortgage loans of up to 40 percent of the home price from banks or insurance companies, when buying a home worth more than 600 million won in market price.

Purchasing an apartment of over this price also falls under the DTI (debt-to-income) ratio regulations, under which borrowers can only take out loans when the amount of principal and interest payments in a year account for 40 percent or less of annual income.

“October saw a 1.3 percent rise in national housing price, much higher than the previous month’s 0.5 percent,” a financial official explained, giving a rationale for the strengthened regulations. “Also, Seoul’s Nowon, Dobong and Jungnang area all topped the national average in housing price hikes this month, with development projects gathering speed, such as the New Towns.”

A backlash from residents is also expected, however. Many analysts attribute the recent price surges in several Gangbuk areas to a complex mix of factors, including a natural tendency of residents who had resented the comparatively low growth in their home prices to want compensatory price increases. The government is also being blamed for having taken preventive measures too early before these areas witnessed an actual housing price jump.