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South Korea tightens rules on housing to restrain buying frenzy in some cities
June 19, 2017 / 7:05 AM / 3 months ago

South Korea tightens rules on housing to restrain buying frenzy in some cities

FILE PHOTO - An apartment complex is seen in Seoul March 4, 2015. REUTERS/Kim Hong-Ji/File Photo

SEOUL (Reuters) - South Korea on Monday announced tighter mortgage rules and curbs on speculative resales of homes in Seoul and parts of Busan - the toughest rules in almost three years as policymakers sought to stabilize hot housing markets amid soaring household debt.

The latest steps are an extension of curbs announced in November 2016, when the government started turning the screws on speculative housing investments amid concerns a worrying build-up in household debt could leave the economy exposed to a crash.

Effective July 3, the government will tighten loan limits for home buyers to 60 percent of a property’s value from the current 70 percent in regions showing signs of overheating including Seoul, the finance ministry and financial regulator said in a statement.

Debt repayments will be limited to 50 percent of home buyers’ annual income in those selected regions, down from the current 60 percent, it said.

The government will also restrict the resale of newly built apartments in Seoul and some parts of Busan until registration of property ownership is complete, to cool speculation in those regions, it said.

Analysts expect the fresh curbs - the tightest restrictions since August 2014 - to have only a moderate impact on the overall housing market.

“This is not a nation-wide measure, so it will pause some buying frenzy in some regions rather than cooling the overall housing market sentiment,” Kim Yu-mi, an economist at Kiwoom Securities said.

Indeed, rather than nationwide measures, the government is trying a targeted approach aimed at cities with the most heated property prices to reduce the impact on the construction sector, which grew almost five times faster than the gross domestic product in the first quarter.

“As for the economy, looks like the construction sector will continue to drive growth albeit at a slower pace,” Kim said, adding the broad economic recovery underway is unlikely to be dented by the housing restrictions.

South Korea property stocks hardly moved as Monday’s measures were in line with market expectations.

In a briefing, vice finance minister Ko Hyoung-kwon warned of more curbs if overheating continues in the targeted regions.

“If we see and confirm overheating widening, we will be firm in adopting more measures, including designating some regions as ‘overheated speculation zone,'” Ko said.

The central bank’s eight rate cuts since 2012 helped send home prices and household debt to record levels.

The average price of a Seoul apartment in March exceeded 600 million won ($529,918.30) for the first time, an increase of more than 20 percent from four years earlier.

Despite a steady rise in mortgage rates, apartment prices in Seoul were up 0.3 percent in the week of June 12 from a week earlier, the fastest clip since 2009, according to Kookmin Bank data.

The average mortgage rate was at 3.21 percent in April, the highest in about 2 years and up from 3.13 percent as of December 2016, Bank of Korea data shows.

“Curbing the property market speculation would limit overall household debt growth,” Kim Doo-un, an economist at Hana Financial Investment said.

At 92.8 percent of the GDP, South Korea’s household debt even exceeds that of the U.S. and Japan, Bank for International Settlement data shows.  

($1 = 1,132.2500 won)

Reporting by Cynthia Kim; Editing by Kim Coghill & Shri Navaratnam

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