Foreigners are buying up property in South Korea. One example is ‘Paarc Hannam (in UN Village)’ in Hannam-dong, Yongsan-gu, Seoul, which was recently sold for a record-breaking 18 billion KRW, to a Malaysian national. A penthouse (407.96㎡) at Dogok-dong Tower Palace, which is a high-end residential complex in Seoul, was also recently bought by a foreigner. This time, it was a Chinese national, who had borrowed an amount of 8.9 billion KRW from a local Chinese bank for the purchase of the luxury penthouse. To foreigners, this is a testament to the bright prospects of real estate investment in Korea.
According to the Korean Ministry of Land, Infrastructure, and Transport’s 2024 Statistics on Land and House Ownership by Foreigners, as of the end of June 2023, a total of 87,723 homes were owned by foreign nationals. Compared to the amount of 83,512 units at the end of December 2022, which was when the ministry first released such statistics on foreign home ownership, this half-year period already showed an increase of 4.43%.
Among these, Chinese nationals in particular own a large number of apartments in Korea. At 54.3%, homes owned by Chinese nationals accounted for more than half of the total with an amount of 47,327 units. This number was followed by those owned by citizens of the US (24,469 units), Canada (5,959 units), Taiwan (3,286 units), Australia (1,801 units), Vietnam (972 units), and New Zealand (794 units).
At our law firm, we have also seen a steady increase in enquiries from foreign investors looking to purchase apartments, land, hotels and buildings in various parts of South Korea. Therefore, we will refer to one of our recent cases to demonstrate why Korea offers a unique investment opportunity for foreigners, and also to provide some legal advice regarding real estate acquisition in Korea for foreigners who wish to own high-end real estate in Korea.
1. ‘Gap Investment’: How Korea’s ‘Jeonse’ System provides an Investment Opportunity for Foreigners in Korea
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Recently, Mr. A, a US citizen, was renting a high-end residential apartment in Gangnam-gu. Since he was highly satisfied with the living environment, he made the decision to buy a property in Gangnam for investment purposes.
What made this investment opportunity particularly attractive to Mr. A was the fact that South Korea has a unique subletting system, called ‘Jeonse (전세)’, which allows you to minimize the purchase price of a property by subsequently renting out the property without living in it yourself.
Let’s say the apartment you want to purchase is priced at 3 billion KRW(Approximately 2.16 million USD), and the ‘Jeonse’ lease deposit is 2.5 billion KRW.
The Jeonse system allows you to pay off the purchase price of a property interest-free by utilizing the large security deposit (also called ‘key money’) made by the actual tenant, so that the foreign investor is able to buy the property at the difference of 0.5 billion KRW. This method is also known as ‘gap investment(갭투자)’.
However, since Mr. A did not know how to accurately determine the prices and go through the proper legal process for purchasing a property in Korea, he asked our law firm to advise and assist him with the purchase of the property.
Mr. A was actively engaging in various business, stock, and coin investments, and had a balance of over 2 billion KRW in his Korean bank account, as well as a large amount of funds in his US bank account. But since the sources of these funds were not clearly documented, using this money to purchase the Gangnam apartment could have potentially led to him being investigated by the police for illegal importation of foreign funds.
In that case, if Mr. A were to have been found guilty of illegally importing the funds for the real estate acquisition, he could have faced up to one year in jail and a fine of up to 100 million KRW.
2. Real Estate Lawyer’s Advice for Foreigners looking to invest in Korean Real Estate
To purchase real estate in Korea, certain documents must be submitted to prove the introduction of investment funds, such as remittance confirmation certificate and foreign currency purchase certificate, etc.
Therefore, you will need to provide bank statements from the local bank account to which the funds were transferred from abroad, or the bank statements from the foreign bank account where the foreign investor established the funds. The Korean government requires these documents in order to verify the method and circumstances of how the funds for the investment were established by the foreign investor.
Our client, Mr. A, had records of generating funds through his business in the U.S., so he provided us with bank statements from his local U.S. bank, as well as his U.S. business registration certificate, which we were able to prepare to verify the source of his funds. Additionally, our client had a history of real estate sales in the U.S., so we were able to arrange those records as well, which allowed us to provide the necessary proof for the sources of funds that were needed to purchase the expensive Gangnam apartment in Korea that our client was seeking to obtain.
This finally allowed him to prove the actual investment funds (excluding the tenant’s security deposit), so that he was able to start the process of buying the Korean luxury apartment, and, with our assistance, complete the registration with the Korean registry without any problems.
3. Korean Law Firm’s Full Support throughout the Process of Buying Luxury Real Estate in Korea
Whether you want to buy luxury real estate in Korea or invest in Korean land or properties, foreigners who wish to acquire property in Korea must provide proof of the funds used for the property acquisition.
However, the procedures for reporting foreign exchange transactions differ depending on whether you are bringing all your investment funds into Korea from a foreign country, or plan to only use funds formed in Korea, and due to the complex factors and steps, it is advisable to find a professional who is knowledgeable in all of these processes, but finding one is not easy.
Generally, a Korean real estate agent, tax accountant, and lawyer need to cooperate to handle the respective steps together, and we can proudly say that our law firm does provide an all-encompassing one-stop service to guide foreign investors on this matter.
So, if you are a foreign national who is considering investing in real estate in Korea and wants to ensure that the investment process is handled expertly and efficiently, we invite you to reach out to our firm and consult with our experienced lawyers.
