The Land Transaction Permit System was introduced to curb speculative demand in the real estate market and create a market centered on real demand. However, since its implementation, the market has been met with mixed reactions. This article will analyze the Land Transaction Permit System in greater detail, examining its numerical effects, loopholes in the system, structural limitations, and future policy directions.
The decline in trading volume is clear… but the "effect" is limited.
In March 2025, the land transaction permit system was fully implemented in the three Gangnam districts and Yongsan District. In the preceding month, Gangnam and Songpa Districts each recorded over 800 transactions, while Seocho District recorded over 400. However, in April, when the permit system was implemented, transactions in each district plummeted to below 100. Yongsan District also experienced a pronounced "transaction cliff," with transactions dropping from 260 to less than 20.
In the short term, this clearly had the effect of curbing speculative demand. However, its effectiveness in protecting real demand and stabilizing prices was limited. In particular, prices continued to rise in high-priced complexes, while in mid- to low-priced complexes, transactions were blocked without price adjustments, resulting in inefficiencies.
Attempts to circumvent loopholes in the system
Since the implementation of the system, there has been a rise in ways to circumvent or evade its provisions. A prime example is false registration. Some people report their move-in to meet the residency requirement but do not actually reside in the property. Others rent out their homes and live in other areas to avoid the two-year residency requirement.
In fact, in 2022, a case was discovered in Gangnam-gu where a rental property was operated without meeting the residency requirement, resulting in a fine of 30.08 million won. According to the law, violations of the residency requirement can result in an annual fine of 5 to 101,000 tpa (300,000 yen) of the purchase price. However, crackdowns on system evasion remain limited.
Source: Yonhap News
Complex licensing procedures and trade restrictions
The response on the ground is largely negative. In Seoul, it takes an average of more than 15 days from application to approval for a land transaction permit, and the process is complex. This creates a significant burden for both sellers and buyers. Failure to obtain the permit also renders the contract invalid, increasing transaction risk.
Especially in urgent cases where a sale is necessary, the licensing system can be a significant obstacle to transactions. For this reason, in areas where the land transaction licensing system is in effect, there's a growing number of sellers who say they'll sell after the licensing system is lifted, further limiting the options available to real buyers.
Permitted areas are expected to be readjusted rather than expanded.
The current government appears to be considering selective rezoning rather than a full expansion of the permit zone. While some areas in Gangdong-gu and Seongdong-gu have been proposed for new designation in 2025, calls for lifting the permit are growing for some complexes in Yongsan-gu and Songpa-gu, where transaction cliffs persist.
This movement shows that the land transaction permit system may lose its effectiveness if implemented without precise market analysis.
Formalization of structural limitations and residency requirements
The land transaction permit system has three structural limitations.
First, prices may rise sharply when the land permit system is lifted because only demand is suppressed while supply remains the same. In February 2025, when the land permit system was lifted in the Jamsil, Samsung, Daechi, and Cheongdam areas, there was an instance where an apartment in Daechi-dong, which was being traded for around 3 billion won, exceeded 4 billion won in just one month.
Second, there is a lack of consistency in the system. The fact that designation and deregistration are swayed by political schedules and approval ratings creates significant uncertainty not only for investors but also for actual buyers. One investor, anticipating deregistration, sold his existing home and was considering a new listing when the area was suddenly designated as a new permit zone, leaving him unable to purchase and forced to consider jeonse (a deposit or monthly rent).
Third, the residency requirement only functions formally. There are ways to circumvent the system, such as through fake registration or formal lease contracts, and honest actual users are relatively disadvantaged.
Policy directions to watch in the future
The Ministry of Land, Infrastructure and Transport announced that in 2025, it will conduct a quantitative evaluation based on five indicators, including transaction volume, actual transaction price, and unsold units, when designating permit zones. This signals a shift from indiscriminate designation to a more "precise adjustment" approach.
Furthermore, it is highly likely that policies to expand supply will be pursued in parallel. Easing redevelopment projects in downtown Seoul, high-density development around subway stations, and discovering new housing sites are key policy directions, and expanding supply is expected to be a key keyword in future presidential election pledges.
While the land transaction permit system curbed speculative demand in the short term, it suffers from structural limitations and side effects in the long term. Accurately interpreting market trends requires a comprehensive consideration of supply and demand, policy consistency, and enforcement, beyond simple regulations.
In times of such uncertainty, it's crucial to accurately understand and respond to the market. If you're considering real estate transactions or investments, it's wise to seek the advice of a professional with the expertise and global network of REMAX.
