Tighter mortgage rules cooling real estate market

By Yoon Ja-young

Toughened rules on mortgages are slowing home-backed loans’ growth and cooling down the real estate market, analysts said Friday.

They expressed concern that the restrictions on mortgages should be carefully designed so as not to give a negative signal to the housing market.

According to the new guidelines on loans by the financial regulator, people who get mortgages should pay back both part of principal and interests each month.

Previously, they paid back only interest each month, deferring payback of the principal.

A month after its introduction, mortgage growth is slowing at a fast pace.

Mortgages at the country’s four major commercial banks ― Kookmin, Shinhan, Woori and KEB Hana ― increased only 162 billion won in February, compared with a 1.13 trillion won increase last November.

When excluding collective loans provided to buyers of new apartments, the mortgages decreased.

This is leading to a rapid cooling of the housing market. Apartment transactions in Seoul totaled 4,953 in February, falling below the 5,000 mark for the first time in three years. Since last November, housing transactions in Seoul have fallen by more than 40 percent.

Housing prices, which have been rising on average 0.3 percent each month, recorded a zero rise in February.

Construction companies say that the regulator has gone too far. “Household loans are not in a bad shape as those in the upper 40 percent of the income bracket hold 70 percent of them,” the Korea Housing Builders Association (KHBA) noted in an announcement.

The association stressed that the household debt problem should be solved by improving the overall economy, boosting domestic consumption and creating jobs, thus increasing household income. “For that, the normalization of housing market is essential as it sustains the domestic economy.”

It pointed out that the excessive regulation on loans could lead to a hard landing in the housing market. “By simply sticking to the total amount of household debt, the regulator may be excessively restricting mortgages that are sound and with low delinquency ratio. It will abruptly cool down sentiment, leading to negative impact on the overall economy.”

The KHBA added that the housing industry is closely related with job creation and domestic consumption.

Shyn Yong-sang, a senior research fellow at the Korea Institute of Finance, said the restrictions were necessary but gave the wrong signal to the market.

“It is a matter of timing. The economy isn’t in good shape and there was too much supply of new apartments last year. Strengthening of regulations on mortgages at this time made people think that the government is aiming at curbing the real estate market,” he said.

That is not what the government has intended, according to Shyn. “The government may be perplexed as it only aimed at controlling household debt. It knows that the housing market shouldn’t freeze.”

He said the regulator should be more flexible in mortgage restriction. “It should continuously give signals to the market that it isn’t aiming at curbing real estate. Construction companies should also control supply to avoid an excess.”