Buying South Korean property has flown under-the-radar despite a hot property market and very friendly foreign ownership rules. There are a few reasons for this, of course. For starters, real estate prices in the country are higher than what’s available in Thailand, the Philippines and, in some places, Japan.
Additionally, the South Korean government introduced a series of measures designed to cool the sizzling home market in Seoul. These included legislation to restrict borrowings to existing homeowners and reigning in spiralling household debt. However, the impact of these have been minimal and home prices keep rising in the South Korean capital.
Residential prices elsewhere in the country remain flat. This makes it an interesting time for buying South Korean property. Even as the government has rolled out nine separate rounds of cooling measures, it has only slowed the real estate market’s momentum outside of Seoul. Similar to Hong Kong, it seems like investors will keep scooping up units in the capital until something drastic happens. There are some limited property investment opportunities in other parts of the country, but not enough to move most overseas buyers.
Want to know about buying South Korean property? Here’s a brief guide with some basic information you’ll want to know.
Buying South Korean property
Foreign ownership
It has been more than 20 years since the South Korean government deregulated the real estate market and opened it up for foreign ownership. These days foreign nationals buying South Korean property can acquire apartments, houses, entire buildings and land. The only thing they can’t buy is land in military installation reservations, cultural property protection zones or ecosystem reservation districts.
Paperwork
Just like all real estate transactions, there is a mountain of paperwork that must be done. Unsurprisingly, in South Korea this paperwork is all in Korean. It’s also important to note what you’re required to submit varies depending on if you’re a resident in the country or are buying from overseas. Working with a local real estate agent is strongly advised due to the language and knowledge challenges you may encounter. There are many licensed real estate agents who work with foreigners to ensure a smooth transaction process.
Taxes
Buying South Korean property will require you to pay various taxes and fees. These are all fairly standard and overseas buyers are not burdened by any stamp duties or taxes targeting non-local buyers. All of these taxes and fees are the responsibility of the buyer unless negotiated otherwise.
Acquisition tax: 2.3 percent of purchase price
Registration Tax: 3 percent of purchase price
Value Added Tax (VAT): 10 percent of purchase price
Housing Bonds: 5 percent of purchase price
Stamp Duty: Varies, but around 0.20 percent of the property value.
There are also a few smaller taxes (nothing more than 1 percent) buyers are responsible for in addition to legal fees.
Letting out your South Korean property
The system of renting out a residential unit in South Korea is probably quite different from what you are accustomed to. There are some traditional monthly rentals, but the majority of properties are let out via a Jeonse.
So what’s this?
Instead of rent, the tenant will put down a large deposit of 50 to 80 percent of the market value of the property. They then get to stay in the apartment rent free for the duration of the agreement which is usually no less than two years. The landlord will return the deposit after the agreement, but is able to collect all interest the money has earned.
If you’re confused about Jeonse, think of it like this. The tenant who lives in the property is a moneylender while the landlord is the borrower. The unit is used as collateral. If anything happens to the deposit, the tenant is still entitled to their money. The property will be put up for sale and the tenant will receive money after once this is completed.
How difficult is the entire process?
If you’re an experienced real estate investor, buying South Korean property is no more or less difficult than most other countries. You will need to work with a local real estate agency. This isn’t that hard to find and several cater to overseas buyers. The biggest upside to the South Korean property market is the friendly foreign ownership policy which means you aren’t limited in terms of what can be acquired.
Letting out your property will require you to better understand the benefits and risks of the Jeonse system. That being said, more people in South Korea, especially Seoul, are willing to rent a residential property by making monthly rental payments. Just do your research on the neighbourhood, rental demand and price prospects before making a final decision.