Neglected 'Gongyu-type Mortgage'... Government Ignores, Ruling Party Promotes as 'Campaign Promise'

Sharing Capital Gains Instead of Borrowing at Low Interest
5,881 Sales in 2014... Only 15 Last Year
Low-Income People Ignore Policy Amid Rising House Prices
Function Lost but Government Neglects for Years
Ruling Party Proposes Improved Model but Structure Remains 'Limited'

[Asia Economy Reporter Moon Jiwon] The government's representative support policy for low-income homebuyers, the 'shared mortgage,' was sold only 15 times last year, showing that it is being ignored in the market. This contrasts sharply with the nearly 6,000 sales recorded in 2014, when the policy was first introduced. Despite effectively losing its function, the government has yet to propose any improvement measures or revitalization plans and is leaving it unattended.

According to the Ministry of Land, Infrastructure and Transport on the 3rd, the support performance for the 'profit and loss sharing mortgage' last year was limited to 15 cases. Compared to the peak of 5,881 cases in 2014, this is about one four-hundredth of that level. The sales amount also dropped significantly, from 774.7 billion KRW in 2014 to only about 2.2 billion KRW last year.

The shared mortgage is a housing loan product where low-income households borrow at low interest rates in exchange for sharing the housing fund and capital gains. Eligible homes are apartments with exclusive use areas of 85m² or less and priced at 600 million KRW or less, with loans available for up to 70% of the home price.

For the profit-sharing type, the interest rate is 1.5% per annum, and for the profit and loss sharing type, it ranges from 1% to 2%, which is lower than commercial banks. However, when selling the home or repaying the loan, up to 50% of the capital gains?calculated by subtracting the purchase price from the sale price?must be returned to the housing fund. The idea is to share the profits in exchange for borrowing money at a low interest rate.

By product, the profit-sharing mortgage peaked in 2014 with 4,698 cases (644.1 billion KRW), then declined continuously to 1,025 cases (147.3 billion KRW) in 2015, 82 cases (11.4 billion KRW) in 2016, 28 cases (4 billion KRW) in 2017, 24 cases (4.1 billion KRW) in 2018, and dropped to 12 cases (1.8 billion KRW) last year. This means only about one case was sold per month.

The profit and loss sharing mortgage, which had 1,183 cases in 2014, was sold only 3 times (400 million KRW) last year, effectively losing its role as a housing loan product.

The sharp decline in the use of shared mortgages appears to be due to the steep rise in housing prices in Seoul and the metropolitan area last year. Although the interest rates are lower than those of commercial banks, potential homebuyers are reluctant to use a product that requires giving up a significant portion of capital gains in a situation where huge profits are expected.

Democratic Party of Korea leader Lee Hae-chan is delivering a greeting at the '2020 General Election Pledge Announcement' held at the National Assembly in Yeouido, Seoul, on the morning of the 29th of last month. (Photo by Yonhap News)

However, even considering this situation, some point out that the drastic drop in usage is due to the government's initial flawed product design. The eligibility is limited to household heads without a home for over five years, with an annual income of 60 million KRW or less, and net assets of 371 million KRW or less.

Moreover, despite the product effectively losing its function, the ruling Democratic Party has announced plans to introduce a 'profit-sharing mortgage exclusively for youth and newlyweds.' The Democratic Party intends to introduce a new shared mortgage with an interest rate of 1.3%, which is 0.2 percentage points lower than the existing product's 1.5%. They also plan to increase the loan limit (from 200 million KRW to 300 million KRW) and extend the repayment period (from 20 years to 30 years).

However, this product is also limited to newlyweds and youth, with conditions such as a combined annual income of 70 million KRW or less, and the target housing and loan limits remain largely unchanged, leading to criticism that its effectiveness will be limited.

An industry insider said, "It seems like a hastily prepared new plan without considering improvements to the structure that has lost popularity," adding, "Although it is a loan product, it also has a strong welfare policy aspect to help low-income households purchase homes, so the government should put more thought into revitalizing it."

A Ministry of Land, Infrastructure and Transport official said, "Although it is not popular now, this product can be well utilized by those who have little saved funds or find it difficult to borrow money due to high interest burdens from commercial banks," and added, "Regarding the ruling party's announced plan, we will review whether it is appropriate to provide additional benefits only to newlyweds and youth and whether the fund has the capacity to support it."

This content was produced with the assistance of AI translation services.