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Buying Real Estate - Residential

Buying Real Estate - Resid...

As of 1998, foreign residents have been allowed to purchase property in Seoul. Following is information on the process for buying residential property, inlcuding the manner in which banks calculate 'mortgages'. 

Eligibility:To purchase a residential property (apartments or villas) in Korea, a foreign national must be a legal resident.  with an alien registration card, a seal, and a seal certificate (the last two can be obtained from a local "dong" office). 

Category: At the time of purchasing a residential property, a foreign national must disclose to the bank her/his source of funds (SOF) and the purpose of the purchase.

- If the SOF is from overseas, the foreign purchaser will need the contract document to bring the money into Korea.  If  the purpose is investment, then the purchase will be treated as per Foreign Direct Investment (FDI) acts, and as such require (FDI) notification. However, if the purchaser intends to live in the premises, then no notification is required. 
- If SOF is from the purchaser's income in Korea, then the purchase can be made without the need to show the contract first. 

Financing: There are two aspects to keep in mind while looking to finance a mortgage. Following are two sample cases (LTV and DTI).
1. Assumptions for LTV (loan-to-value ratio):
(a) Real estate appraisal amount: KRW 500 million
(b) No tenants
(c) No prior mortgage
(d) No. of rooms: 4
(e) The apartment is being purchased through an auction, and a 10% down-payment was already paid.
The following formula is used to determine the eligible loan amount with respect to the appraisal amount (or the value of the real estate).
{(a) * (40%~60%)} - {(d) * 1/2 * KRW 25 million)}, which could be: 
{500mil won * (40%~60%)} - {4 * 1/2 * 25mil won)} = 150mil ~ 250mil won

The LTV range of 40%~60% is determined by the location of the property. For speculative zones, such as Songpa-gu, Gangnam-gu, and Seocho-gu for example, the LTV has been set by the government on the lower side, which is 40%. For non-speculative zones the LTV can be as high as 60%.

2. Assumptions for DTI (debt-to-income ratio):
(f) Yearly repayment amount (Equal Monthly Installment based, includes interest and principal) on an existing un-secured personal loan (say 10mil won @ 7%): 700,000 won
(g) Yearly repayment amount (EMI based) on an existing office-tel "jeonse" loan (say 100mil won @ 6%): 6,000,000 won
(h) Yearly repayment amount (EMI based) on the to-be mortgage loan (say 300mil won @ 6%): 18,000,000 won
(i) Yearly gross income (before tax): 50,000,000 won
The DTI ratio basically restricts how much one can borrow based on one's annual income and other existing loan obligations, and the formula to compute this is as follows:
[{Yearly repayments on existing loans (f + g) + Yearly repayments on the mortgage (h)} / (i)] * 100%, which in this case would be
[{0.7mil won + 6mil won + 18mil won} / 50 mil won] * 100% = 49.4%

The DTI ranges between 40% and 65%, depending on whether the property is located in a speculative zone, in which case the DTI will be maximum 40%, or in a non-speculative zone, in which case the DTI can be as high as 65%.

Banks primarily uses these two factors (LTV and DTI) to determine the loan amount. The final decision also takes into account other factors, such as the credit rating of the borrower and other assets.

Other important parameters to consider when applying for a loan are loan interest rate and repayments. Nowadays, interest rate can be based on either 3-month CD rate, or 6-month or 12-month COFIX rates. The COFIX rate is the new benchmark for floating rate bank loans. In terms of payment plan, one will have the option to choose a monthly installment plan plus lump-sum repayments without a fee.

Registration: The purchaser must report the aquisition of real estate to the jurisdictional city(si), county(gun), or district(gu) office and register the transfer of ownership within 60 days of signing the purchase contract.

Source: a KEB staff person provided much of the information above.

K4E Note: tries to ensure that the information we provide is accurate and complete, so should you notice any errors or omissions above please contact us at We have had reports from foreign nationals that local banks appear to consider them high risks, even with the property as collateral.


Last Updated on 2014-03-19

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