In a bid to cool the red hot housing markets amid surging household debt, South Korea unveiled measures aimed at tightening mortgage restrictions as well as curbing speculative resale of houses in Seoul and parts of Busan, reported Reuters.
Starting from 3 July, the loan limits for home buyers will be reduced from the current 70 percent to 60 percent of the property’s value in regions showing signs of overheating such as Seoul, said the finance ministry and financial regulator.
Debt repayments in Seoul will be limited to 50 percent of the annual income of borrowers.
The resale of newly built apartments in Seoul as well as some parts of Busan will also be restricted, until the completion of the registration of property ownership.
Instead of rolling out nationwide measures, the government is using a targeted approach in order to reduce the impact on the construction sector, which rose almost five times faster in Q1 than the gross domestic product.
“This is in line with what the market had expected for weeks,” said Hana Financial Investment economist Kim Doo-Un.
“Although mortgage rules are being tightened, it may not be enough to cool the property market demand as some regions had supply shortage problems.”
Notably, the eight rate cuts by the central banks since 2012 brought household debt and home prices to record levels.
The average apartment prices in Seoul exceeded 600 million won (S$733,745) for the first time in March, up by more than 20 percent from the last four years.
Data from Kookmin Bank showed that Seoul apartment prices rose 0.3 percent in the week of 12 June from the previous week, or its fastest since 2009.
“Curbing the property market speculation would limit overall household debt growth. I don’t see debt growth worsening under such policy direction,” noted Kim.
At 92.8 percent of the GDP, the household debt of South Korea exceeds that of Japan and the US, revealed Bank for International Settlement data.
This article was edited by Denise Djong.
