Skyrocketing Seoul Home Prices Propel Pre-construction Rights (2020.02.10.)
The rapid surge of Seoul apartment prices, initiated following the inauguration of the Moon Jae-in administration, has extended to the presale rights of homes. Premiums for such rights in major complexes scheduled for occupancy this month have risen by nearly KRW 1 billion in four years.
These valuations represent more than a twofold increase relative to original subscription prices. The disparity is projected to widen further, as the pronounced preference for new builds coincides with a locked-in effect on supply resulting from intensified capital gains taxation.
While I naively anticipated a market surge commencing next year based on asking and transaction prices, presale rights have already taken flight by February…
1. Absolute Prohibition of Mortgages for Apartments Exceeding KRW 1.5 Billion (0% LTV)
This is the cornerstone of the December 16 Protocol. Mortgage lending is completely restricted for apartments priced above KRW 1.5 billion within “speculative zones” and “speculative-overheated zones” (which encompass the entire Seoul area). Consequently, the acquisition of a residential property in Gangnam and other primary Seoul districts now necessitates the full provision of the purchase price, including acquisition and registration taxes, in cash—effectively consolidating these markets as the exclusive domain of the cash-rich alone.
2. Tougher LTV Rules on the Portion above 900 million (differential LTV application)
For the portion up to KRW 900 million, the LTV remains 40%. But for any amount above KRW 900 million, the LTV is sharply cut to 20%. For example, if you buy a home worth KRW 1.4 billion, the maximum loan available is only KRW 460 million: $(900\ million × 40%) + (500\ million × 20%) = 460\ million$. The remaining KRW 940 million, alongside all ancillary transaction costs, must be paid by the buyer in cash.
3. Restrictions on Jeonse Financing and Heightened Occupancy Requirements (Obstruction of Leverage Investment)
Should a recipient of a Jeonse (lump-sum deposit) loan acquire a home valued in excess of KRW 900 million, the loan is immediately recalled. Furthermore, even owners of a single residence are mandated to relocate into the newly acquired property within six months, if the property is located in a regulated area. These measures are designed to preemptively dismantle the structure of buying with a tenant deposit in place
4. Transition of the Subscription Market to a “Full-Cash” Structure
Interim-payment loans are categorically precluded for residential property priced above KRW 900 million. If the market price exceeds KRW 1.5 billion by the time of move-in, even balance-payment loans are likewise prohibited. Thus, even if you are lucky enough to win a presale allotment, you cannot finalize the acquisition unless you can mobilize the entire presale price in cash.
Summary
Given that the average transaction price for the top 10% of Seoul apartments has already surpassed KRW 2 billion—and with residential property values across Seoul now ranging from KRW 700 million to 1.5 billion—the imposition of these credit restrictions signifies that the Moon administration has effectively dismantled the socio-economic ladder for upward mobility into premium districts. In effect, the Moon administration is saying that only people holding at least 1 billion in cash should be buying a home in Seoul.