1.5 Trillion Won Mortgage Released and Additional Deregulation in Restricted Areas... Still 'Insufficient' to Resolve Transaction Freeze

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11th Emergency Economic Policy and Livelihood Meeting

Deadline for disposing of existing homes for subscription winners extended from 6 months to 2 years

Non-homeowners allowed LTV of 50%... Mortgage loans permitted even for homes exceeding 1.5 billion KRW

[Asia Economy Reporters Minyoung Kim, Dongpyo Kim] The government’s “Real Estate Regulation Normalization Plan” announced on the 27th focuses on normalizing the nearly extinct housing market transactions and protecting genuine buyers. As housing transactions sharply declined due to interest rate hikes, and risks in the real estate market increased due to project financing (PF) failures and funding shortages triggered by the Gangwon-do Legoland project, the measures are interpreted as efforts to ease regulations and guide a soft landing for the market. Experts view the measures positively for easing financial difficulties and tax burdens on genuine buyers, but believe it will be difficult to resolve the current transaction freeze as long as interest rates rise and economic recession concerns persist.

First, the loan-to-value ratio (LTV) for non-homeowners and one-homeowners planning to dispose of their existing homes will be relaxed to 50%, and mortgage loans will be allowed for apartments exceeding 1.5 billion KRW in speculative and overheated speculation zones.

Previously, LTV regulations varied depending on house prices and types of regulated areas, but from next year, a uniform 50% LTV will be applied regardless of house price. For example, in overheated speculation zones, LTV was applied at 40% for portions of the house price up to 900 million KRW and 20% for the portion exceeding 900 million KRW. However, regulations for multi-homeowners will remain unchanged to prevent speculative inflows and avoid stimulating house prices.

Measures to revive the sluggish pre-sale market, where unsold units are rapidly increasing nationwide, were also introduced. The Korea Housing & Urban Guarantee Corporation (HUG) and the Korea Housing Finance Corporation (HF) will expand their guarantees for interim payment loans from homes priced up to 900 million KRW to those priced up to 1.2 billion KRW. This aims to prevent cases where buyers give up moving in due to lack of interim payment loans. Additionally, the deadline for disposing of existing homes for one-homeowners who win subscription bids will be extended from 6 months to 2 years.

Ham Young-jin, Head of Zigbang Big Data Lab, analyzed, "As the real estate market shrank and the apartment subscription market cooled rapidly, the regulation banning group interim payment loans for homes priced over 900 million KRW was relaxed to over 1.2 billion KRW (HUG interim payment loan guarantee expansion). This reflects a realistic adjustment of loan capacity for subscription demanders according to the market."

Furthermore, the government plans to hold the Housing Policy Deliberation Committee in November to consider additional deregulation of regulated areas. Currently, 39 speculative overheated zones and 60 adjusted target areas are designated nationwide.

Experts positively evaluated the measures as steps to prevent excessive crashes in the real estate market but expressed skepticism about transaction activation. They cited that as long as interest rates continue to rise, the burden of interest payments will make it difficult for buying demand to revive.

Lee Eun-hyung, Research Fellow at the Korea Institute of Construction Policy, said, "The previously unclear high-priced housing standards proposed by the previous government have been abolished. Suppressing transactions of high-priced homes while promoting only mid- to low-priced home transactions lacks realism. This measure alleviates factors that suppress transactions regardless of housing price range."

Seo Jin-hyung, Co-Representative of the Fair Housing Forum and Professor of MD Product Planning and Business at Gyeongin Women's University, said, "As long as tax regulations such as acquisition tax surcharges and capital gains tax surcharges remain, it will be difficult for transactions to revive. Even if loan limits increase, there will not be many buyers willing to bear expensive interest payments during a period of rising rates to purchase their own homes."

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