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Real Estate

Foreigners’ Jan-May Korea apartment purchases top $1 bn on buying spree

Aug 04, 2020 (Gmt+09:00)

Foreign investors have stepped up apartment purchases in South Korea in recent years, adding fuel to the already heated residential property market which reported the biggest monthly rise in almost 10 years in July.

In the first five months of the year, foreigners snapped up 1.25 trillion won ($1.05 billion) worth of apartment houses in Korea totaling 3,514 in terms of transactions, according to the National Tax Service on August 3. The transaction value represents a 49% jump from a year-earlier period, with the number of transactions up 27% during the period.

Since 2017, a total of 23,219 foreigners had spent a combined 7.7 trillion won buying 23,167 apartment houses in the country as of the end of May. On an annual basis, the number of transactions has been on the rise since 2017.

Their buying spree was fueled by record-breaking bull run in the housing market, supported by ultra-low borrowing costs. The jeonse system, a traditional rent system in which tenants pay a lump-sum deposit to lease the home, also helped individual investors to buy houses with small amounts of money.

In July, residential house prices in South Korea posted the biggest monthly rise since April 2011, up 0.61%, according to the Korea Appraisal Board.

Of the 23,167 apartment houses acquired by foreigners, 32.7% have never been occupied by the owners since their acquisitions. Among the buyers, those also identified with Korean social security numbers represent 4.2%.

In particular, a US citizen has gobbled up as many as 42 small apartment houses worth 6.7 billion won in the Seoul metropolitan area and the Chungcheong Province where the central government complex is based, since 2018.

The unidentified buyer was able to buy them, using the jeonse system, given that he had no income big enough to buy them. The capital sources were unclear, the tax office said in a statement.

Of the 23,167 transactions, the Seoul metropolitan area took most of their transactions, with the city of Seoul accounting for 4,473 cases worth 3.3 trillion won since 2017.

Among them, 1,036 foreigners bought more than two apartments. Chinese investors led the pack, accounting for 13,573 cases, followed by Americans who represented 4,282 cases of purchases.

TAX INVESTIGATION

“Buying and holding several apartments in Korea where they do not live is suspected as speculative demand,” the tax office said in the statement. “In this regard, we have embarked on a tax investigation on 42 buyers, including foreigners holding several houses, suspected of rental income tax evasion.”

Going forward, the National Tax Service will carry out thorough tax investigations on property transactions to ward off concerns about the apartment price rises triggered by foreign capital, it added.

Foreigners are subject to the same tax rules on purchases, ownership and transfers as South Korean citizens.

By In-Seol Jeong

surisuri@hankyung.com

Yeonhee Kim edited this article

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