By Kim Tae-gyu
Indisputably, the outstanding policy among the comprehensive steps aimed at reviving the slumping real estate markets announced on Sunday is the easing of the debt-to-income ratio (DTI) rules.
As the Seoul administration temporarily relaxes the DTI regulations in defiance of its previous stance of sticking to it by any means, folks will be able to borrow increased amounts from banks when they buy homes.
There are several conditions: They should not be multiple homeowners and the value of the homes must be less than 900 million won, located outside the property speculation zones of the Gangnam, Songpa and Seocho districts in southern Seoul.
These requirements are not so hard to meet for ordinary people who want to buy apartments with a mortgage. Hence, many would be able to benefit.
A household with an annual income of 30 million won trying to snap up an apartment in Seoul’s non-speculation areas will be able to borrow 250 million won under a 20-year repayment scheme, up from 170 million won with the previous DTI policy in place.
When those with a yearly revenue of 50 million won want to purchase a 700-million- won apartment, they will be eligible for a maximum of 350 million in mortgages, up from 290 million won.
``Traditionally, Koreans tend to move en masse in January and February. We thought we need to jettison the DTI rule through next March to assist those who move early next year,’’ Financial Services Commission Director General Jung Eun-bo said.
``We did not change our approach toward DTI. We put our top priority on stabilizing the property markets. But we also have to take into consideration the troubles suffered by people who are struggling to buy homes to live in due to stalled transactions.’’
The Ministry of Land, Transport and Maritime Affairs (MLTM), which spearheaded the establishment of the Aug. 29 measures, concurs.
``These are very extraordinary policies, which will not last that long. We put first the stability of the property markets. We are not mulling over any follow-up measures. This is it for the foreseeable future,’’ MLTL official Seong Ho-cheol said.
Stressing that the Aug. 29 announcement is basically about helping lower income-bracket households, the MLTL picked as an example the 200 million won loans for those who are buying homes for the first time in their life.
They would be able to get the loans from a state fund, whose budget is 1 trillion won, over the next seven months at a relatively low interest rate of 5.2 percent per annum.
Industry watchers claim it remains to be seen how well the government initiatives will work to put the anemic real estate transactions back on track.
Effects of changes on builders
On top of the eased DTI regulations, the government has come up with several ways of helping beleaguered construction companies such as rearranging the supply of cheap state apartments and financially backing the builders.
A majority of market observers point out that the Aug. 29 policies are encouraging for the construction industry, which has faced only bad news over the past year in the midst of the unprecedented downturn in the markets.
``The government has been consistently against the idea of making any alterations to the DTI regulations but they did. This would give a big signal to the markets that the worst time may be behind us,’’ a Seoul analyst said.
``Specifically, owners of small-sized apartments located in Mokdong in Seoul and Pyeongchon in Gyeonggi Province are likely to be some of the major beneficiaries of the temporary measures.’’
Samsung Economic Research Institute researcher Park Jae-ryong is on the same page with the anonymous analyst.
``In my view, people’s expectations on further depreciation of the housing values are most responsible for the current slumps in house trading. The government’s policies would tame such fears of a continual downward spiral,’’ Park said.
It was not however difficult to find pessimists.
``The Aug. 29 steps seem to be more compressive than initially expected including the extent of the loosening of DTI regulations,’’ said Kim Kyu-jung, an analyst at domestic consultancy Real Estate 114
``Yet, banks are raising their thresholds for mortgages. They are unlikely to extend loans too much even without the DTI rules. Without direct tax cuts on transactions, it will not have that big an effect as woes on additional property value depreciations linger.’’
Even Financial Services Commission Chairman Chin Dong-soo, the country’s top financial policymaker, admitted that the easing of DTI rules would not substantially boost flagging construction businesses.
``The introduction of DTI regulations last year helped then fast-appreciating real estate values stabilize. But the withdrawal of them will not bring that big an influence to the market,’’ Chin told a few reporters during an unofficial luncheon earlier this month.
``I do not think the eased DTI regulations will be a huge help to the construction industry in the short term. It might give a signal to the market that the government will not sit idle against prolonged slumping real estate transactions, though.’’