South Korea said Friday it has decided to place a new cap on commissions earned by real estate agents from October, as the nation’s heated housing market has led to a spike in broker fees, instigating public concern on the additional burden.
The new measure will target broker fees on property purchases valued over 600 million won ($508,000) and lease deals over 300 million won, according to the latest announcement by the Ministry of Land, Infrastructure and Transport.
The commission rate cap on properties valued over 600 million won was slashed by 0.1 percentage point to 0.4 percent, while those priced below the line would maintain their current cap.
Currently, real estate brokers can legally receive up to 0.5 percent of the transaction amount for properties valued between 600 million won and 900 million won.
While a 0.9 percent rate cap is equally adopted on properties valued over 900 million won for now, the latest measure would implement different caps on more specific ranges. Properties valued between 900 million won and 1.2 billion won would adopt a 0.5 percent commission cap, while those in the range of 1.2 billion won to 1.5 billion won would get a 0.6 percent cap. The highest range of properties valued over 1.5 billion won would adopt a cap of 0.7 percent.
The cap would noticeably lower commission fees for transactions of high-end properties, as it would lower the cap for 900 million-won properties from the current maximum of 8.1 million won to 4.5 million won.
For lease transactions, the commission cap for deals valued between 300 million won and 600 million won would be lowered by 0.1 percentage point to 0.3 percent.
The ministry initially planned to lower the cap for lease deals valued between 600 million won and 900 million won to 0.3 percent from the current 0.8 percent, but instead adjusted it to 0.4 percent. It took account of the real estate agents’ protest that the price range is the most popular for “jeonse” deals, meaning they get most lease commissions from deals within the price range.
Jeonse is a rental system where the tenant hands over a large lump sum to the landlord -- on average, about 65 percent of the value of the property -- and does not pay rent. The deposit is returned to the tenant at the end of the contract.
The government has also been reviewing the adoption of a higher bar on the state real estate agent exam.
The revised cap on broker fees comes as the Moon Jae-in administration has failed to cool down the nation’s heated housing market despite adopting more than 20 sets of measures in an attempt to do so. Finance Minister Hong Nam-ki last month warned of a housing bubble and hinted that a price correction could come if property prices continue to soar at this rate.
Data from KB Kookmin Bank’s Liiv Real Estate indicate that the average Seoul apartment price stood at 1.14 billion won in June, up 23.5 percent on-year. Jeonse prices were 627 million won, up 17.86 percent on year.
By Jung Min-kyung (email@example.com