This paper derives no arbitrage condition between rental market and purchase market of apartments assuming risk neutrality, no transaction cost and rational expectation. Then, the paper performs empirical test to see whether or not the no arbitrage condition holds in Seoul area apartment markets. Empirical test is performed using monthly panel data from January 2003 to December 2011. During the data period, government’s regulation on apartment trade has increased until January 2007 and stayed at maximum and then has decreased from August 2008. The paper finds that no arbitrage condition in Seoul area apartment markets holds much better in the deregulation period from August 2008 to December 2011 than in the regulation perio from January 2003 to July 2007. The paper concludes that government’s regulation increases transaction cost which is ignored in the derivation of no arbitrage condition and hence the condition does not hold well in the regulation period. Because increases in transaction cost usually reduces efficiency, such conclusion suggests that government’s regulation in the apartment markets in Seoul area has reduced efficincy of the markets during the regulation period.