Government to loosen lending rules, support exporters

Finance Minister Choo Kyung-ho, third from right, announces economic policy directions Tuesday at the government complex in central Seoul. [YONHAP]

The Korean government will loosen lending requirements for landlords while extending financial support and tax breaks for exporters.

Weak exports, signs of improvement in inflation and consumer spending have encouraged the move, announced by the Ministry of Finance and Economy on Tuesday.

The ministry announced its new policy directions for the rest of the year while downgrading its projection for this year’s gross domestic product growth to 1.4 percent from the previous 1.6 percent.

A key change was made in lending regulations for a certain type of loan when a landlord borrows money to repay a deposit in a jeonse transaction.

Jeonse refers to a system in which a tenant pays a very large refundable deposit upfront in return for rent-free or reduced-rent occupancy for a fixed period, while also usually forgoing the interest that would accrue on the amount if it had been left in a bank account.

The landlords will be subject to the 60 percent ceiling of debt to income (DTI) ratio starting the end of July for one year. This means the amount of annual principal and interest rate obligations for the loan they apply for cannot be over 60 percent of their annual income.

The previous debt service ratio (DSR) for such loans was 40 percent, which prohibited the combined amount of all debt being serviced from surpassing 40 percent of their incomes.

The move came as Korea sees lower levels of household debt over the past months entering this year.

Korea's household debt decreased at the fastest pace ever in the first quarter, affected by high-interest rates and the credit squeeze by the government.

Household debt stood at 1,853.9 trillion won ($1.40 trillion) in the first three months, down 13.7 trillion won from the previous quarter, according to the Bank of Korea.

Still, the reading turned to growth in May and June, reigniting concerns over ballooning debt levels.

Finance Minister Choo Kyung-ho said the looser lending only applies to specific property owners who intend to pay back jeonse deposits and for a temporary period.

“The government will continue to stick to building fiscal soundness with the existing DSR cap applied for other loans,” the minister said in a press briefing Tuesday.

Another regulation the government hopes to lift is a requirement that buyers actually dwell in apartment complexes they acquire in the form of presale for at least two years before they sell them.

An amendment to lift the regulation is pending at the National Assembly.

To ensure the sufficient supply in the housing market, the ministry plans to approve the construction of 76,000 housing units by public developers.

It will also provide a total of 184 trillion won in favorable loans for small-and-medium sized companies that wish to sell their products and services abroad in the second half of the year.

Another area of focus is fostering foreign workers to supplement the shrinking population of young people.

The government will increase the quota for E-7-4 visas by the end of the year. The visa category is reserved for skilled professionals. The increased quota could extend to E-9 visa for unskilled laborers, according to the ministry.

President Yoon Suk Yeol was briefed about the latest economic policy direction Tuesday.

“Once consumer price growth hovered above 6 percent, but it has slipped to the 2 percent range,” Yoon said.

“The unemployment rate is at record lows and current account also turned to a surplus last month,” he said. “The second half will be an inflection point to prove the Korean economy’s resilience and take a step further for growth instead of just avoiding risks.”

The president called for the passage of public livelihood laws such as housing and medical acts since many proposed policies have yet to take hold because of bickering at the National Assembly.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]