Real estate regulations further tightened

Finance Minister Hong Nam-ki, far left, and Minister of Land, Infrastructure and Transport Kim Hyun-mee, third from left, exit a briefing room in Seoul Monday. [YONHAP]

Regulations are being tightened on property as the market shows no sign of cooling despite a raft of measures from the Moon Jae-in administration.

The new measures include those related to tax, loans and maximum prices.

Only the capital gains tax was eased, on the hope that the lower rate will encourage owners of multiple properties to sell their surplus apartments.

On Monday, the government banned all mortgage loans for an apartment worth over 1.5 billion won ($1.3 million) in speculative and overheated areas.

This effectively means that anyone in Seoul with an apartment above the limit will be prevented from borrowing, as all Seoul is considered speculative.

The loan ban is effective today and affects all new borrowings.

Loan-to-value (LTV) ratios on apartments whose market value exceeds 900 million won are also being tightened.

While apartments valued under 900 million won in the speculative and overheated areas will still be subject to a 40 percent LTV ratio, and those valued above 900 million won will only be able to get a 20 percent loan. New LTV loan criteria will be applied from Dec. 23.

The government hopes the tougher conditions will discourage speculative investments.

Real estate taxes will also be raised.

The comprehensive real estate tax will be increased 0.1 percentage points to a maximum 0.3 percentage points. Those with three or more apartments, or two apartments in speculative or overheated areas, will pay up to 0.8 percentage points more in terms of the comprehensive real estate tax.

The limit on tax increases will be raised to 300 percent of the previous year, from 200 percent, for those owning more than two apartments in designated areas.

Assessed values will also be increased to better reflect price increases. From next year, 70 percent of the market value will be used to arrive at the assessed value for apartments valued between 900 million and 1.5 billion won. That ratio will be increased to 75 percent for those with a market value between 1.5 and 3 billion won and up to 80 percent for those valued at more than 3 billion won.

On average only 70 percent of the market value has been reflected in the assessed value.

The government also expanded the number of districts to which it will apply the maximum ceiling on preconstruction sales. The last time the government designated the maximum limit was a month ago in eight districts in Seoul that were centered in the Gangnam area. This time, the government has added five more districts in Seoul and three cities in Gyeonggi - Gwacheon, Hanam and Gwangmyeong.

Until the end of June next year, the government will exempt from capital gains tax apartments sold in the designated areas if the apartments have been held for more than a decade.

“It is the government’s determined will to no longer allow unearned income,” Finance Minister Hong Nam-ki said, adding that that was always the goal of the administration.

The finance minister said apartments should not be used as an investment tool for unearned income but rather as residential space that offers relaxation and stability, which should be the basis for guaranteeing a good life.

“Although the various measures did not reach up to the level of our plan, if market anxiety does not resolve, the government will act fiercely against the phenomenon where market anxiety leads to various side effects and strips away the lower-income households’ hope [of owning their own apartment].”

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]