S. Korea tightens housing rules to limit buying and decrease debt

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By CGTN's Jack Barton

South Korean homebuyers will have to put down a larger deposit to purchase property from now on. The government announced tighter mortgage rules and curbed home sales in Seoul and parts of Busan on July 3. These are toughest rules in almost three years as policymakers sought to stabilize hot housing markets amid soaring household debt.

South Korea's household debt stood at 1,359.7 trillion won (1.2 trillion US dollars) at the end of March 2017, a dramatic increase from 665 trillion won (85.1 trillion US dollars) at the end of 2007, according to the Bank of Korea.

The new policy increases the minimum deposit on a property, from 30 percent to 40 percent of the total sale price.

Busan, South Korea /VCG Photo

The government also announced plans to lower loan limits for home buyers to 60 percent of a property's value in regions showing signs of overheating such as Seoul. Before the decrease loans were limited to 70 percent of the property's value.

"Between the last five to ten years the price has gone up three times in the area around Gangnam station and in the rest of Gangnam they have doubled and prices are still rising steadily," said Kim Aram, a real estate agent.

Debt repayments will also be limited to 50 percent of home buyers' annual income in those selected regions, down from the current 60 percent.

Household debt in South Korea has skyrocketed to more than 92.8 percent of gross domestic product (GDP) at the end of 2016, up 4.7 percentage points from a year earlier, based on the data from the Switzerland-based Bank for International Settlements.

Seoul, South Korea /VCG Photo

Some insiders are not optimistic about the new policy. "The real estate price for land and apartments has slightly stabilized, but I think prices will rise up more,” said Kim In-yong, a real estate agent.

Moreover, analysts also warns that such high debt will be unsustainable, feeding into a potential real estate bubble.

"The government wants to prevent household debt from increasing so they have created a policy and they have put this policy in place to make the real estate market slow down," said Kwon Dae-jung, a professor of real estate at Myongji University.

The government has a balancing act on its hands attempting to dampen credit, simultaneously trying to spur economic growth. And that may not be the only problem. Working class homebuyers are also the key elements should be concerned in the movement.

"Even if the middle and upper classes don't get the five or ten percent more in extra loans from the bank they will still invest money in real estate, they won't be affected, but there will be an affect for people below middle class," Kwon stressed.