since the real estate measures announced on October 15, the market has fallen into a deep silence. Transaction volumes have plummeted and the market seems to have frozen. but as real estate expert Minsoo "Genesis Park" Park analyzes, this is just the beginning of a "calm storm. with the government warning that it has "touched something it shouldn't have," two huge waves are forming beneath the surface. they are the land transaction permit system, which is choking the market, and the ticking time bombof rising real estate taxes, whichissilently approaching . in today's post, we'll focus on these two key factors and dig deeper into the devastating impact the 10-15 real estate measures will have on the market and our survival strategies.

the first shock to choke the market: the Land Transaction Permit System

the most powerful measure in the 10-15 Real Estate Plan is the expansion of the Land Transaction Permit System, which is more than just a financial regulation that tightens lending; it's a prescription for restricting the freedom of real estate transactions themselves. in areas designated as land transaction permit zones, you must prove your intention to live there and get "permission" from the local ward office before you can buy or sell a home, and you will be required to live there for two years. this essentially prevents 'gap investments' such as buying a house while renting.

the paradox of the trade cliff and new highs

the market reacted immediately: transactions slowed sharply and buyers stopped coming in. But here's the "paradox" that Park warned about. thefreezing of transactions and theformation of new highsare both polarizing phenomena.

lending regulations and permits exclude the vast majority of real buyers and investors who lack the financial resources from the market. now the only players in the market are the 'cash rich' who can buy a house without a loan. with only a handful of transactions taking place, the sought-after complexes in which they move are often overpriced. The market is thus reorganized into a league of the wealthy, while the rest of the population is forced to sit on the sidelines. this can lead to further wealth polarization.

the wrong victim: The case of Suwon's Paldal-gu

a bigger problem with the measures is the "uniformity" of the regulations. not only areas with overheated speculation, but also areas with mostly residential demand have been indiscriminately grouped into land transaction license zones. a typical exampleis Paldal-gu, Suwon, where there is a high concentration of mid- to low-priced apartments in the 300-400 million won range, and where transactions were driven by real demand rather than speculation.

the government explains that this is to prevent a "real estate balloon effect" in neighboring areas, but it has the side effect of kicking people off the housing ladder and preventing them from exercising their property rights. this one-size-fits-all regulation that doesn't take into account market conditions is further clouding the outlook for the real estate market.

a second threat looming silently: the 2025 tax bomb

if the Land Transaction Permit System prevented the market from 'trading', now a tax hike is on the cards to increase the cost of 'holding'. park analyzes that the government will not directly raise tax rates as it has done in the past. instead, he warns, it will quietly but surely increase the tax burden in ways that are harder for people to feel.

the government's silent weapon: ad valorem and fair market value ratios

there are two key tools the government will use:ad valoremandfair market value ratios.

  1. raising the open market value: A gradual increase in the open market value, which is the basis for more than 60 taxes, including property tax and comprehensive real estate tax (ad valorem tax). as the basis increases, all related taxes cascade upward.

  2. fair market value percentage adjustment: This is the percentage that sets the base amount (tax base) for tax purposes. it is currently lowered to 60%, but the government can raise it back to 80% or higher with a simple amendment to the law.

both of these can be adjusted administratively without amending the law, making them powerful cards that the government can pull out at any time.

a 1.5x tax hike, a reality?

park warns that the combination of these two cards alone could seeyour property and ad valorem tax burden skyrocket from at least 1.5 times today to as much as 2 times by 2025. this means that many people could be shocked by an unexpected "tax bomb" when they receive their tax bill in 2025. And it's not just homeowners - the increased property tax burden could eventually lead to higher rents, adding to the instability of the sublet market and increasing the pain for renters.

the new reality, how to respond?

so, in the face of this frozen market and looming tax hikes, what should we do?

why is the balloon effect limited?

the "real estate ballooning" into unregulated areas that has occurred following past regulatory announcements will be different this time around. Unlike in the past, the current market has significantly reduced buying power. strong DSR regulations and still high acquisition taxes and barriers make it difficult for investment demand to be easily shifted to other areas. While we may see some localized flows to areas with favorable development, we are unlikely to see the same kind of widespread ballooning that we have seen in the past.

final advice for buyers and investors

mr. Park's advice is clear.

  • buyers: You don't have to give up on the dream of homeownership, but you need to be more cautious than ever. Don't make investments that involve your soul. with the market frozen, it's wise to shop for a home that you can afford within your financial plan.

  • investors: This is a clear case of 'wait and see'. with the double whammy of slowing transactions and increased capital gains tax burdens, rushing into investments could come back to haunt you. a strategy of holding cash and waiting for opportunities until the market's direction is clear is needed.

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frequently asked questions (FAQs)

Q1: What are the key points of the 10-15 Real Estate Plan?

A1: There are two key points of the measures. first, the designation of 12 areas across Seoul and Gyeonggi Province as land transaction license zones to prevent gap investments and severely curtail transactions. Second, the announcement of a "silent tax hike" that will significantly increase the burden of holding taxes starting in 2025 through adjustments to the open price and fair market value ratios instead of a direct tax increase.

Q2: Will I not be able to buy a house if it is designated as a land transaction permit zone?

A2: No. You can buy a home, but you must prove that you are a "real buyer" who will live in the home for at least two years and obtain permission from the mayor of the city, county, or district office in charge. This is a very complicated process, as you need to explain your financing plan in detail, and you cannot make a gap investment for the purpose of renting.

Q3: I am a homeowner. is this my chance to buy my own home?

A3: The market is frozen, and while there is a chance that there will be some quick sales, you need to be cautious. tighter lending rules have made it harder to get financing, and there will be higher property taxes in the future. you should thoroughly analyze your ability to repay, and focus on a stable home rather than short-term market gains. Rushing into a purchase can be dangerous.

Q4: What will happen to real estate prices in the future?

A4: In the short term, it may seem like the market has stabilized, with strong regulations leading up to the deal cliff. however, polarization will increase, with record prices being driven by a handful of transactions by the cash-rich in some popular neighborhoods. In the long term, pent-up demand coupled with future supply shortages could lead to greater market instability.

conclusion

the 10-15 real estate measures have frozen transactions in the market, but behind the scenes, there is an even bigger wave of change coming.The key point is that the rules of the real estate market have completely changed, with the twin pillars of 'less transactions' and 'increased burden of ownership'. It's a new era where the old investment formula doesn't work. it's time to prepare for the coming storm with sober analysis and conservative capital planning.

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