This week, as the rise in Seoul apartment prices has spread, with the largest increase in 6 years and 9 months, financial authorities have announced plans to apply the Debt Service Ratio (DSR) to Jeonse and policy loans as part of household loan management measures. Some predict that this will help rein in the surging housing prices, while others warn that if it is perceived as a demand-suppression measure, it could further stimulate buying sentiment.

According to the weekly apartment price trend report from Korea Real Estate Board on June 20, Seoul apartment sales prices rose by 0.36% compared to the previous week. This is the highest weekly increase since the second week of September 2018 (0.45%). Until April this year, the weekly increase rate for Seoul apartments was only around 0.08% for three consecutive weeks. After that, it began to rise gradually, reaching 0.13% in the third week of May and 0.16% in the fourth week (May 26). In June, the pace accelerated to 0.19% (June 2) and 0.26% (June 9). This week, the increase surpassed those figures, marking the largest rise since the Moon Jae-in administration.

Seoul Apartment Price Increase Rate 0.36%
Highest Weekly Rise in 6 Years and 9 Months

"Tightening Jeonse Loans Reduces Borrowing Capacity
Suppresses Switching Demand... Stabilizes Housing Prices"

"When Seen as a Demand Suppression Signal,
It Further Stimulates Buying Sentiment" Some Point Out

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Seongdong-gu in Seoul saw a 0.76% increase compared to the previous week, surpassing the three Gangnam districts to rank first in weekly growth rate. This is the highest increase in about 12 years and 2 months since the fifth week of April 2013. The largest increases were recorded in Gangnam-gu (0.75%), Songpa-gu (0.70%), Gangdong-gu (0.69%), Mapo-gu (0.66%), and Seocho-gu (0.65%) in that order. For Gangnam-gu and Seocho-gu, this is the highest increase in 13 weeks since the third week of March, and for Mapo-gu, it is the highest since statistics have been compiled. Yongsan-gu rose by 0.61%, the highest in 7 years and 4 months since February 2018. The Korea Real Estate Board stated, "As prices sellers hope to achieve are rising in preferred complexes such as those undergoing reconstruction and large-scale complexes, and as inquiries from buyers increase, upward transaction cases are being observed, and the overall upward trend in Seoul is continuing."

Amid this, it has been reported that the Financial Services Commission is considering applying the DSR to Jeonse and policy loans as well, leading to various outlooks regarding its implementation. The previous day, the Financial Services Commission reportedly presented this plan during a policy briefing to the National Policy Planning Committee. Jeonse and policy loans have recently been cited as the main background for the rapid increase in household loans. However, since these loans are targeted at ordinary people, there are concerns that such measures could inadvertently worsen housing insecurity for low- and middle-income households. For this reason, financial authorities have previously held a negative stance on directly regulating Jeonse and policy loans.

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In the market, some predict that if DSR phase 3 is implemented next month and loan limits for borrowers are reduced, and if Jeonse loans are tightened as well, it could contribute to stabilizing housing prices. Ham Youngjin, head of the Real Estate Research Lab at Woori Bank, said, "If Jeonse loans are included, it will become virtually impossible to obtain alternative loans, greatly reducing borrowers' capacity to borrow." He added, "This year, demand for moving to preferred areas has driven up housing prices, but if this demand is suppressed, the upward trend may lose momentum."

There are also concerns that this could send the wrong signal to the market. While certain areas do require management, if the measure is perceived as demand suppression, it could further stimulate buying sentiment. Currently, the three Gangnam districts and Yongsan-gu in Seoul are designated as land transaction permit zones, making gap investment impossible. Nevertheless, they continue to serve as the epicenter of rising housing prices in Seoul.

Park Won-gap, senior expert at KB Kookmin Bank, said, "Jeonse loans are primarily for actual housing needs, and policy loans are intended to support housing for vulnerable groups. If actual regulations are applied, the most vulnerable will inevitably be hit the hardest." He added, "Rather than simply 'controlling housing prices' or 'regulating,' policy goals should be set to reduce volatility and curb sharp increases through more sophisticated and realistic adjustments."