Assemblyman Min Hyung-bae Warns of Balloon Effect from Loose Loan Regulations on 'Non-Residential Investment'

Non-Housing Secured Loans Exceeding 100% DSR Total 3.2 Trillion Won

[Asia Economy Honam Reporting Headquarters Reporter Yoon Jamin] From September last year to July this year, new domestic bank non-residential mortgage loans with a Debt Service Ratio (DSR) exceeding 100% amounted to approximately 3.2 trillion KRW.

This accounts for 35.2% of the total new non-residential mortgage loans of about 9 trillion KRW during this period. There are concerns that this may be a balloon effect caused by relatively lax regulations compared to residential mortgage loans.

According to data on new non-residential mortgage loans from domestic banks submitted by the Financial Supervisory Service to National Assembly member Min Hyung-bae (Democratic Party of Korea, Gwangju Gwangsan-eul), from September last year to July this year, over 10 months, there were about 9,600 new loans with a DSR exceeding 100%, totaling 3.1624 trillion KRW.

The weighted average DSR of all non-residential mortgage loans exceeded 100%, standing at 119.2%.

Looking specifically at commercial mortgage loans among non-residential mortgage loans, loans with a DSR exceeding 100% amounted to 1.1963 trillion KRW (3,100 cases), with nearly half (45%) of the loans executed despite the principal and interest repayment amount being greater than the borrower's income. The overall weighted average DSR was 145%, higher than the weighted average DSR level of all non-residential mortgage loans.

DSR is an indicator representing the borrower's repayment burden relative to their repayment capacity, calculated by dividing the annual principal and interest repayment amount of all loans held by the borrower by their annual income.

This means that in the past 10 months, individuals who purchased land or commercial properties were able to obtain loans even when their principal and interest repayment ratio exceeded their income (over 100%).

Currently, the Financial Supervisory Service assigns and manages average DSR targets by bank (40% for commercial banks, 80% for regional and specialized banks). When obtaining a loan secured by a house priced over 900 million KRW in speculative or overheated speculation areas, a DSR regulation of 40% applies.

The problem is that there are no separate regulations for non-residential mortgage loans. As a result, as the government tightens regulations on mortgage loans for high-priced houses, asset owners are flocking to loans secured by commercial properties and land.

Assemblyman Min said, “As it becomes difficult to invest in housing by taking on excessive debt, people interested in real estate investment are moving toward non-residential investments with looser loan regulations, which is problematic,” adding, “Financial authorities must carefully diagnose whether a balloon effect is occurring due to regulatory blind spots and ensure thorough supervision of banks and borrowers’ soundness management.”

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