Lee cautions on moral hazard among builders

By Na Jeong-ju

Staff reporter

President Lee Myung-bak said Thursday that the construction sector should take "moral" responsibility for the ongoing slump in the housing market, reaffirming the government's tough stance on some ailing builders badly awaiting a financial lifeline.

"We will look into their financial problems, but basically they should pay the price first for their irresponsible business practices," Lee, a former CEO of Hyundai Engineering and Construction, said during an economic policy coordination meeting at Cheong Wa Dae.

"Many people are now suffering difficulties because of the builders. They should have been more prudent," he said.

The remarks indicate that the government won't scale down or stop the ongoing streamlining of the construction sector. The government toughened loan regulations for poorly rated builders amid worries over soaring default risks.

At the same time, however, it has bought unsold apartments, mostly in provincial areas, to avoid the worst-case scenario, drawing criticism that such a policy could deepen the moral hazard among builders.

During the meeting, participants exchanged opinions on various ways to spur housing transactions and rescue some debt-ridden homeowners who have difficulty in selling their homes due to little demand.

"Most agreed that it is not time yet to soften housing loan regulations and there is still a bubble in home prices," a presidential aide said on condition of anonymity. "Instead, they agreed on the need to protect some households suffering from the slumping housing market."

As a result of the slump, the number of unsold homes remains at an alarmingly high level at around 120,000 units, according to government data.

The administration is seeking to reduce the inventory to 75,000 units by the end of the year by buying presale homes through the state-owned Korea Housing Guarantee Corp. on the condition of reselling them to builders or individuals after a certain period.

Some reports said the government was considering raising the loan-to-value (LTV) and debt-to-income (DTI) ratios ― the key tools to control housing loans ― to allow banks to provide more loans to homebuyers as part of measures to revitalize housing transactions.

Vice Finance Minister Yim Jong-ryong, however, denied the reports Wednesday, saying, "We have no plan to raise such ratios at the moment."

The government has kept the LTV ratio at 40 percent and the DTI ratio at 40 to 50 percent in some highly speculative areas in Seoul.

"Many people still regard apartments as means of speculative investment. They were successful in the past, but not now," President Lee said.