Sales of apartments under construction will be restricted
By Yoon Ja-young
The government said Monday it will toughen mortgage regulations and restrict transactions of apartments under construction as part of steps to cool the overheating real estate market.
The land and finance ministries and the financial regulator jointly announced measures to stabilize the housing market — the first real estate market policy announced by the Moon Jae-in government.
Unlike the two previous administrations that used the market as a means to boost the economy, Moon and his ministers have vowed to stabilize housing prices for the livelihood of the working class.
"The unstable real estate market under sway of speculators has made it difficult for those who really need a home to get one, weighing down on households as well as the economy," Vice Finance Minister Ko Hyoung-kwon said.
The measure comes amid soaring apartment prices in Seoul. During the four years under the former President Park Geun-hye administration, apartment prices rose 22 percent while the price of jeonse, Korea's unique home rental system, soared 52 percent. Average apartment prices stood at 318 million won ($180,844) in Seoul last year, which is equal to 11.6 years of an average worker's salary.
Most notable is the toughened restrictions on mortgages, which will go into effect July 3. The government has lowered the loan-to-value ratio (LTV) and debt-to-income ratio (DTI) by 10 percentage points in areas preferred by real estate speculators, including Seoul, Gyeonggi Province, Sejong and parts of Busan.
The LTV, which restricts the mortgage a person can get depending on the value of the property, will be marked down to 60 percent from 70 percent. The DTI, which is linked to a person's income, will be slashed to 50 percent from 60 percent. This means those who seek mortgages won't get to borrow as much as before. The DTI will be applied to some collective loans for those who buy new apartments as well.
The government will also restrict transactions of the right to buy apartments under construction.
In Korea, developers get applications from potential home buyers for new apartments even before construction starts. Buyers are also allowed to sell their apartment-purchasing rights to others, often at higher prices, which made these rights a popular investment tool.
The government, however, decided not to allow such transactions in apartments built in Seoul.
It also strengthened regulations on old apartments subject to reconstruction. Old and small apartments in southern Seoul districts have been popular among investors as their value soars when they are rebuilt into new and spacious units.
The government limited the number of new apartments each investor can buy, which will effectively curb demand by speculators.
"The measures announced this time aim at suppressing speculation while protecting those who really need homes," said Park Seon-ho, head of the home and land division at the land ministry.
The toughened DTI and LTV, for instance, don't apply to households who have less than 60 million won annual income, purchasing a home costing less than 500 million won and currently without a home.
"If the overheating continues, we will consider stricter measures, following a regular analysis of housing market conditions and indices," he said.
The restriction, however, is weaker than the market had expected, according to analysts.
"The government doesn't want sudden contraction of the real estate market," said Kim Eun-jin, chief of the research team at Real Estate 114.
"The restriction focuses on the purchasing rights of new apartments to be built. However, the strengthened loan regulation is likely to curb prices that have been rising steeply recently."
By Yoon Ja-young
The government said Monday it will toughen mortgage regulations and restrict transactions of apartments under construction as part of steps to cool the overheating real estate market.
The land and finance ministries and the financial regulator jointly announced measures to stabilize the housing market — the first real estate market policy announced by the Moon Jae-in government.
Unlike the two previous administrations that used the market as a means to boost the economy, Moon and his ministers have vowed to stabilize housing prices for the livelihood of the working class.
"The unstable real estate market under sway of speculators has made it difficult for those who really need a home to get one, weighing down on households as well as the economy," Vice Finance Minister Ko Hyoung-kwon said.
The measure comes amid soaring apartment prices in Seoul. During the four years under the former President Park Geun-hye administration, apartment prices rose 22 percent while the price of jeonse, Korea's unique home rental system, soared 52 percent. Average apartment prices stood at 318 million won ($180,844) in Seoul last year, which is equal to 11.6 years of an average worker's salary.
Most notable is the toughened restrictions on mortgages, which will go into effect July 3. The government has lowered the loan-to-value ratio (LTV) and debt-to-income ratio (DTI) by 10 percentage points in areas preferred by real estate speculators, including Seoul, Gyeonggi Province, Sejong and parts of Busan.
The LTV, which restricts the mortgage a person can get depending on the value of the property, will be marked down to 60 percent from 70 percent. The DTI, which is linked to a person's income, will be slashed to 50 percent from 60 percent. This means those who seek mortgages won't get to borrow as much as before. The DTI will be applied to some collective loans for those who buy new apartments as well.
The government will also restrict transactions of the right to buy apartments under construction.
In Korea, developers get applications from potential home buyers for new apartments even before construction starts. Buyers are also allowed to sell their apartment-purchasing rights to others, often at higher prices, which made these rights a popular investment tool.
The government, however, decided not to allow such transactions in apartments built in Seoul.
It also strengthened regulations on old apartments subject to reconstruction. Old and small apartments in southern Seoul districts have been popular among investors as their value soars when they are rebuilt into new and spacious units.
The government limited the number of new apartments each investor can buy, which will effectively curb demand by speculators.
"The measures announced this time aim at suppressing speculation while protecting those who really need homes," said Park Seon-ho, head of the home and land division at the land ministry.
The toughened DTI and LTV, for instance, don't apply to households who have less than 60 million won annual income, purchasing a home costing less than 500 million won and currently without a home.
"If the overheating continues, we will consider stricter measures, following a regular analysis of housing market conditions and indices," he said.
The restriction, however, is weaker than the market had expected, according to analysts.
"The government doesn't want sudden contraction of the real estate market," said Kim Eun-jin, chief of the research team at Real Estate 114.
"The restriction focuses on the purchasing rights of new apartments to be built. However, the strengthened loan regulation is likely to curb prices that have been rising steeply recently."
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