[Home Tech] Homes Built on Debt: What the Household Debt Management Plan Means for Us

Government Restructures Financial-Real Estate Linkage
Loan Strategies Based on Ever-Rising Home Prices Must Be Reassessed
Urgent Sales by Multiple-Homeowners Expected in the Market
Long-Term Expectations for Price Increases Likely to Diminish

Editor's NoteOver 70% of the assets held by Korean citizens are tied up in real estate. A home is not only our most important asset but also our closest and most comforting place. While living with these assets tied up, we aim to provide you with the information you need to buy and sell homes. The Asia Business Daily presents [Home Tech] every three weeks in collaboration with Hyosun Kim, Senior Real Estate Specialist at KB Kookmin Bank, to offer essential knowledge.

Humans live in the present with hopes for tomorrow. We endure today—and sometimes advance our decisions by leveraging future income—for better education, better jobs, and greater opportunities. Loans are the quintessential system that makes such choices possible. Loans are based on the premise of future income and assets, but the problem is that the future does not always unfold as expected.

This premise has not been sufficiently tested in Korea's real estate market until now. In an environment characterized by low interest rates and rising asset prices, loans were seen as opportunities, not risks. Leverage investments using jeonse (lump-sum deposit leases) and the holding of multiple homes were widely accepted as effective strategies for growing one’s assets. Now, that underlying premise is changing. The belief that all real estate values will rise over time is no longer universally valid. The formula of infrastructure expansion, housing supply, and price increases—formed during the era of high growth—is structurally weakening. The leverage strategies based on constantly rising asset prices must also be revisited.

The policy signal reflecting these changes came on April 1, when the Financial Services Commission announced its "2026 Household Debt Management Plan." The restriction on extending mortgage loan maturities for multiple-homeowners goes beyond simple regulation; it amounts to a structural review of the leverage-based asset expansion practices that have prevailed for years.

In the past, as long as borrowers kept up with interest payments, they could easily extend their loan maturities. Rental income covered the interest, and asset price increases led to greater wealth—this structure could be sustained. While efficient during periods of rising markets, this approach carries risks that could spill over into systemic instability when the financial environment changes.

The latest measures are not merely aimed at a specific group. They encompass total loan management, business loan oversight, and the regulation of online lending platforms, representing an attempt to overhaul the very structure connecting finance and real estate. However, to protect tenants, an exception will allow maturity extensions so long as the lease agreement remains in effect. As a result, rather than a sudden surge in property listings, the market is likely to see a gradual increase in supply as contracts expire.

In the short term, we may see an increase in urgent sales, especially among multiple-homeowners who struggle to cope with high interest rates. For those who had delayed selling due to tax burdens or other factors, these measures may prompt faster decision-making. In the medium to long term, the pressure for more properties to come onto the market—especially in the Seoul metropolitan area—could accumulate between 2026 and 2027. While the shocks may be dispersed, the structural shift that limits expectations for price increases is inevitable.

Because higher-priced homes come with lower loan limits, transactions in this segment will likely contract further. This will cause demand to shift toward mid- and lower-priced homes, which remain relatively accessible. As regulations tighten, this dual structure—where demand for mid- and lower-priced homes is maintained or even strengthens—is likely to persist for some time.

Another crucial variable affected by these policies is the jeonse market. Multiple-homeowners are a key source of jeonse supply. If they sell off their properties or convert them from jeonse to monthly rentals to reduce loan burdens, the supply of jeonse units will decrease and upward pressure on prices will increase. Some of this demand may shift to the sales market. The government’s decision to include tenant protections alongside these measures is interpreted as an effort to mitigate such chain reactions.

This is only the beginning of policy changes. The financial authorities have announced forthcoming additional regulations for non-resident single-homeowners, and if the expansion of the debt service ratio (DSR) and the push toward long-term fixed-rate loans are included, the scope of regulation will likely broaden to cover the entire market. Given the policy goal of reducing the household debt-to-GDP ratio to 80% by 2030, it will be difficult to achieve this with the current measures alone, suggesting that further regulations are only a matter of time.

Economist Hyman Minsky pointed out that "stability breeds instability." The more stable a market appears, the more participants are willing to take on higher leverage, only to have the risks surface during a correction. For years, Korea’s real estate market has operated on three assumptions: rising prices, loan extensions, and expanded leverage. Now, all three are being shaken at once.

What is needed now is a shift in perspective. The focus should move from asset size to debt structure, and from capital gains to cash flow. Leverage is no longer simply a tool for maximizing profits but a risk that must be managed. Ultimately, the message of the latest policy is that real estate is changing from an asset that can be infinitely expanded through finance to a tangible asset that must be managed within one’s means. For today’s market participants, reading the direction of this change is the most important strategy.

Hyosun Kim, Senior Real Estate Specialist, KB Kookmin Bank Star Advisory Group

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