The acquisition of real estate by foreign nationals in South Korea has surged, fueling an already overheated property market. Some of those properties have been purchased through financial misconduct, intensifying concerns about the inflow of foreign capital.
The government needs to regulate real estate acquisitions by foreign nationals.
According to the Korea Real Estate Board, the number of transactions by foreigners in residential buildings -- apartments, detached houses, multiplex housing units and studio flats -- rose 18.5 percent year-over-year to 21,048 last year. The figure is at an all-time high since the board began compiling related statistics.
Seoul, Incheon and Gyeonggi Province accounted for 79 percent of those transactions. In Seoul, foreign buyers concentrated on Gangnam and other districts where housing prices have skyrocketed in recent years.
According to data from the Ministry of Land, Infrastructure and Transport submitted to Kim Sung-won, a People Power Party lawmaker, foreign buyers made 26,836 deals involving buildings and land last year. The deals were worth 11.24 trillion won ($11.7 billion) combined, the largest figure in five years. A significant amount of foreign capital is flowing into the local real estate market.
Chinese accounted for 51.3 percent of the deals in 2020. The number of transactions by Chinese surged 79 percent from 2016.
According to the ministry, foreign nationals also owned 251.6 square kilometers of land in the first half of 2020. That is an area 87 times as large as Yeouido, a large island on the Han River in Seoul. Their combined state-appraised value exceeded 31 trillion won at that time.
Furthermore, some foreigners raised funds illegally to buy local properties. Seoul Main Customs reportedly investigated 500 foreigners who bought apartments in Seoul over the past three years with suspicious funds and found that 61 had broken the law. They made foreign exchange transactions using cryptocurrencies and also evaded tariffs, buying 55 apartment units worth 84 billion won.
Illegal funds from abroad are disrupting the local property market, but more concerning is that there are few systems in place to prevent this.
Real estate acquisition by foreigners is mostly governed by the foreigners’ real estate acquisition law enacted in 1961. It required foreigners to get permits if they wanted to buy property. Then the administration under President Kim Dae-jung eased the requirement by shifting from a permit system to a reporting system, in a bid to help the nation deal with a shortage of foreign currencies.
Domestic financial institutions apply a wide array of restrictions on housing loans to Koreans wanting to buy apartments, particularly in and around Seoul, but foreigners can circumvent them by using overseas banks. Koreans are subject to heavy acquisition and possession taxes if they own more than one house. But foreigners can escape such taxes even if they own multiple houses overseas. Now, as a rule, foreigners -- like Koreans -- can buy property without prior permits, except for certain zones such as locations of military facilities or cultural assets that need to be protected.
When Koreans buy apartments, they receive thorough scrutiny regarding the source of the funds. But it is questionable if the authorities can trace funds raised by foreigners just as scrupulously. It is practically impossible to ascertain data on foreign property.
It is reverse discrimination to constrain locals as tightly as Korea does where real estate is concerned, while effectively giving foreigners free rein.
The government opposes regulating foreigners’ transactions, citing the principle of reciprocity in international relations. But, for example, China restricts real estate purchases by foreigners. Some countries restrict foreigners from engaging in property deals or impose separate taxes.
Chinese money has gobbled up real estate on Jeju Island, a major tourist attraction in Korea. The government must not let foreign capital erode Seoul and its vicinity. It must also prevent local land from being developed indiscreetly with foreign funds.
If the nation’s real estate falls prey to foreign speculators, Koreans who want to live in affordable homes are the only ones who will be hurt. There is no reason to be generous about foreigners’ speculative purchases of local property on the grounds of reciprocity, while locals suffer from sky-high housing prices.
The government needs to regulate property speculation by foreigners. The playing field is uneven.
