Gov’t tightens reins on housing

The government rolled out tightened curbs on mortgage lending and expanded regulations on the resale of purchase rights in select regions Monday, the first move by the Moon Jae-in administration to rein in an overheated housing market.

A trio of government bodies - the Financial Services Commission, the Ministry of Strategy and Finance and the Ministry of Land, Infrastructure and Transport - added some parts of Busan and Gwangmyeong, Gyeonggi to its watch list where buyers will face stronger loan-to-value and debt-to-income requirements. In Busan, Jin District and Gijang County were newly included.

“We’ve recently spotted excessive overheating in some parts of Busan and Seoul,” said Ko Hyoung-kwon, First Vice Minister at the finance ministry.“The latest measure is aimed at targeting speculative demand for cashing in on price differences.”

The maximum loan-to-value ratio for buyers in those regions will be lowered to 60 percent from 70 percent, which will translate into a lower ceiling of loans available compared to the value of housing.

As for the debt-to-income ratio for mortgage loans, the threshold will fall to 50 percent from 60 percent starting in July. Still, the government attempted to exclude non-speculative homebuyers as lower-income couples and first-time buyers will be exempt from the new ceilings. The income threshold for married couples stood at 60 million won ($52,871), though the standard will rise to 70 million won for first-time home buyers.

The authorities also extended limits on the transfer of purchase rights of new construction to all of Seoul. Currently, home buyers in four districts in southern Seoul - Gangnam, Seocho, Songpa and Gangdong - are banned from reselling their property until registration of ownership transfer but such a rule will be applied to all Seoul districts as of Monday.

The government stopped short of designating new “speculative investment regions” in which the sale and transfer of houses are banned altogether during the pre-designated period.

The government said the latest measure is more of a supplement to the regulation announced in November. At the time, regulators designated 37 areas, including districts in Gangnam and Haeundae in Busan, as regions that require “adjustment.” The latest announcement adds three locations to the list.

Under the new measures, owners of apartment complexes from the 40 designated areas undergoing reconstruction will be limited to having only one unit of the apartment, down from the current three.

But the vice minister vowed the designation of speculative investment zone if the exuberance continues. “If it is needed we will further raise the level of scrutiny by designating the areas as investment speculation.”

Since the new regulations concern select regions, analysts were wary of a dramatic impact.

“Lowering the ratios by just 10 percent will not be enough to do the job,” said Kim Se-chan, a researcher from Daishin Securities.

“The crux [of the measures announced on Monday] was intended to rein the housing markets of Seoul, Busan, Sejong and Gyeonggi from further heating up but its overall impact will be limited. The government has to come up with more draconian measures. This is just a temporary move and we expect another tightening attempt in the second half.”

Baek Kwang-je, an analyst from Kyobo Securities, echoed that view.

“The scope of regulation has been expanded this time but its impact will be similar as the one from November,” Baek said.

“The measures announced Monday won’t be able to change the overall course of direction of the market,” he continued. “They may cool down the market temporarily. But the housing market boom comes from supply unable to keep pace with demand, which means regulating loans cannot be the solution.”

Zhin Woong-seob, governor of the Financial Supervisory Service, warned officials at the agency on Monday that the demand for housing loans may skyrocket as prospective borrowers may flock to take out loans before Monday’s measures take effect. Zhin said this could pose a threat to the agency’s effort in management of household debt.

BY PARK EUN-JEE, CHOI HYUNG-JO [park.eunjee@joongang.co.kr]