South Korea to cut commissions to real estate broker amid fears of high housing costs

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South Korea said Friday it has decided to set a new cap on commissions received by real estate agents from October as the country’s hot housing market has led to a surge in brokerage fees, raising public concerns about the additional burden.

According to the latest statement from the Ministry of Land, Infrastructure and Transport, the new measure will target brokerage fees for real estate purchases in excess of 600 million won (US $ 508,000) and rentals over 300 million won.

The ceiling for commissions on properties over 600 million won has been reduced by 0.1 percentage points to 0.4 percent, while the cap will remain the same for properties below the set price.

Currently, real estate brokers can legally receive up to 0.5 percent of the transaction amount for real estate valued between 600 and 900 million won.

While the 0.9 percent rate cap is equally accepted for properties over KRW 900 million, the latter will include other limits in more specific ranges. For properties between KRW 900 million to KRW 1.2 billion, a commission limit of 0.5 percent will be applied, and for properties in the range of KRW 1.2 billion to KRW 1.5 billion, a fee limit of 0.6 percent will be applied. … For the highest range of properties over 1.5 billion won, a 0.7 percent cap will be set.

This cap will significantly reduce the transaction fees for luxury real estate transactions as it lowers the cap for 900 million won from the current high of 8.1 million won to 4.5 million won.

For lease transactions, the upper commission limit for transactions between 300 and 600 million won will be reduced by 0.1 percentage points to 0.3 percent.

The ministry originally planned to reduce the limit for leasing transactions by 600 to 900 million won to 0.3 percent from the current 0.8 percent, but instead adjusted it to 0.4 percent. It takes into account the protests of real estate agents that the price range is the most popular for jeonse transactions, that is, they receive the highest rental commission on transactions within that price range.

Jeonse is a rental system in which the tenant transfers a large lump sum to the landlord – on average about 65% of the property’s value – and does not pay the rent. The deposit is returned to the tenant at the end of the contract.

The government is also considering introducing a higher bar on the government real estate agent’s exam.

The revised limit on brokerage fees stems from Moon Zhe-Ying’s administration failing to cool the national heated housing market, despite taking more than 20 sets of measures in an attempt to do so. Finance Minister Hun Namki last month warned of a housing bubble and hinted that a price correction could occur if property prices continue to rise at this rate.

Data from Liiv Real Estate KB Kookmin Bank show that the average apartment price in Seoul was 1.14 billion won in June, up 23.5 percent from a year earlier. Prices for Chonse were 627 million won, up 17.86 percent from last year.

Posted by Jung Min Kyung (mkjung@heraldcorp.com)



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