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Seoul high-rise apartments viewed from the Lotte World Tower in the Jamsil neighborhood. (Park Jong-shik, staff photographer)

The ruling Democratic Party is pursuing legislation to regulate speculative apartment purchasing among foreign nationals, which has been cited as a factor in the recent overheating of the South Korean real estate market.

According to accounts from the National Assembly on Aug. 5, Democratic Party lawmaker Chung Il-young sponsored an amendment to the Local Tax Act that would impose 20% more in acquisition taxes in cases where foreign nationals do not actually take up residence in South Korean properties within six months of purchase. Explaining his proposal, Chung said, “Since there are no regulations for foreign nationals in terms of acquiring housing, we need to eliminate speculative demand and pursue stability in the housing market through an increased acquisition tax.” On July 27, Democratic Party floor leader Kim Tae-nyeon announced plans to “develop countermeasures for speculative real estate purchasing by foreign nationals after examining overseas cases.”

Number of foreign property pwners by nationality

Canada, Australia, Singapore, and other countries have various mechanisms to regulate investment in local real estate by foreign buyers. A report on “overseas examples of real estate purchasing by foreign nationals” drafted late last year by the National Assembly Research Service (NARS) and submitted to the office of then United Future Party lawmaker Hong Chul-ho showed that Canada imposes an acquisition tax equivalent to 20% of acquisition face value for residential real estate purchased by foreign nationals in certain regions, including central Vancouver.

Number and value of apartment purchases by foreign nationals

Australia has a foreign investment review committee in place to review whether real estate investment by foreign nationals conflicts with the “national interest.” Foreign nationals must receive the committee’s approval to purchase or rent real estate valued at AUD 50 million (US$36 million) or more. In 2017, the Australian federal government announced plans to revise the real estate taxation structure for foreign purchasers, including barring them from requesting transfer income tax exemptions when disposing of real estate owned in Australia for residential purposes.

Additionally, they are required to pay a withholding tax of 12.5% of the sale amount to the Australian Taxation Office if they cannot prove their status as resident taxpayers when disposing of real estate. In the state of Victoria, foreign buyers are required to pay an additional stamp duty and absentee owner surcharge when purchasing real estate.

In Singapore, foreign buyers pay an acquisition tax amounting 20% of face value when acquiring housing as a measure to stabilize the housing market.

In contrast, foreign nationals in South Korea are able to acquire domestic real estate on more or less the same terms as domestic purchasers. Some have claimed that the recent rise in housing prices has been the result of foreign high rollers “shopping” for local real estate. Indeed, some are even suggesting a situation of reverse discrimination has emerged as recently intensified loan regulations mean that foreign purchasers can skirt South Korean financial regulations by taking out loans in their home country’s banks to buy South Korean real estate.

According to monthly real estate transaction figures from the Korean Appraisal Board (KAB), June saw 2,090 transactions by foreign nationals involving domestic buildings -- the largest number since statistics were first compiled in 2006. A recent National Tax Agency audit uncovered a US national in their 40s who is suspected of tax evasion after purchasing 42 apartments in the past two years through a “gap investing” approach.

With real estate speculation among foreign purchasers emerging as a real issue, the South Korean government has begun examining a possible legislative response. An official with the Ministry of Economy and Finance said, “We plan to examine overseas cases of regulation and consider whether there is any possibility of them being in violation with international agreements.”

By Lee Kyung-mi, staff reporter

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