New regulations target rising home prices in Seoul

The government has designated all of Seoul and 12 areas in Gyeonggi Province as regulatory zones, sharply reducing mortgage limits for apartment purchases. This is the Lee Jae-myung administration’s third major housing measure since his June 3 inauguration, following the June 27 loan rules and the September 7 supply plan. While the steps may slow home price growth, experts say more is needed to spread demand beyond specific neighborhoods.

The Oct. 15 measures place all 25 Seoul districts, including the Gangnam 3 (Seocho, Gangnam, and Songpa) and Yongsan, as well as Gwangmyeong, Gwacheon, Bundang, Sujeong and Jungwon in Seongnam, and Suji in Yongin, under a triple regulatory system: land transaction permission zones, speculative overheating zones, and adjusted areas. Buyers in these zones must obtain local government approval and live in the property for at least two years.

The measures hit mortgages hardest. Loan-to-value ratios for first-time buyers in regulatory zones fall from 70 percent to 40 percent. Separate caps apply to high-priced homes: under 1.5 billion won, loans are limited to 600 million won; 1.5 to 2.5 billion won, 400 million won; and above 2.5 billion won, 200 million won. Jeonse loans for single homeowners are capped at 200 million won, making deposit-based “gap investments” more difficult.

The government expanded the zones broadly to prevent a “balloon effect,” in which prices rise in adjacent areas if only high-demand neighborhoods such as the Han River belt are regulated. With short-term housing supply in the Seoul metropolitan area limited, officials opted for wide-ranging transaction curbs. From January to August, new apartment construction in Seoul totaled about 11,600 units, down 15 percent from the same period last year, while housing sales fell 43 percent to 8,900 units. Supply is expected to drop further next year. The measures aim to curb speculative investment in high-end properties.

To ensure the measures have a lasting impact, the government must accelerate redevelopment of high-density first-generation satellite cities such as Ilsan and Bundang and speed up the slower development of second-generation satellite cities. Expanding transit infrastructure, including the Greater Seoul Metropolitan Express Railway (GTX), is also essential to provide young residents with comfortable commutes from satellite cities to Seoul.