Korea's financial authorities said they will keep household loan growth strictly capped within 1.5% in the second half of the year. Regulations on non-resident single-home owners will be applied only to a minimum number of cases where there is no controversy over speculation. Samsung Electronics and SK hynix employees who received bonuses worth hundreds of millions of won will see the weighting of bonuses in their debt service ratio (DSR) calculations reduced.
According to the financial sector on the 16th, Financial Services Commission Chairman Lee Eok-won made the remarks at a second-half policy briefing held at the Blue House the previous day, saying, "We will stably manage the total volume of household loans to maintain the principle of insulating real estate from finance." The statement reaffirmed that there is no change in the policy stance, even as lending hurdles in the banking sector have risen following KB Kookmin Bank's decision to uniformly cap mortgage loans at 300 million won.
Accordingly, the target of managing the growth rate of household loan balances within 1.5% remains unchanged. The authorities judged that loosening lending rules could stimulate the real estate market at a time when housing prices continue to rise, centered on Seoul. While some point out that the household debt management target should be reset given that this year's nominal gross domestic product (GDP) growth rate is expected to exceed 12%, the authorities maintain that an absolute reduction in the scale of household debt is necessary. Shin Jin-chang, Secretary General of the FSC, said, "The household debt-to-GDP ratio is in the high 80% range, higher than the mid-60% range in major advanced economies," adding, "I understand that other banks are not considering measures to sharply reduce loan limits like Kookmin Bank."
The weighting of bonuses in DSR calculations will be reduced. Currently, when a one-time bonus increases income by more than 20% above a typical year, the DSR is calculated based on average income over two years. However, going forward, the income calculation period will be expanded to three years.
The authorities have decided to minimize the scope of jeonse (a Korean lease system requiring a large lump-sum deposit instead of monthly rent) loan regulations for non-resident single-home owners. This takes into account concerns that genuine end-users could be harmed if speculation is judged by a uniform standard, since circumstances vary from job, school to hospital. Those who reside in provincial areas and purchase homes in Seoul are expected to be the main target. A financial authority official said, "There should be no victims of good faith," adding, "This measure is not aimed at inducing the sale of real estate."
After the policy briefing, Chairman Lee held a public forum on real estate policy at the Bank Association Hall to gather public opinion on lending rules. At the forum, equity issues arising in the process of buying a home were raised, such as the increasing number of people in their 20s and 30s who, blocked from loans, receive gifts from their parents to make purchases.
An operator of a Naver real estate cafe said, "Current lending rules kick in from housing prices of 1.5 billion won, but the average purchase price in Seoul is 1.5 billion won," adding, "Those in their 20s and 30s feel it is unequal. The regulatory threshold should be raised." Kim Mi-ru, a director at the Korea Development Institute (KDI), pointed out, "Financial regulations block the demand of those who cannot buy without loans, so they should be short-term." Secretary General Shin said, "Under the income requirements for policy loans, dual-income households have a penalty element as their income is reduced from the simple sum," adding, "We will supplement the income and asset standards."
The easing of relocation cost loan regulations was also discussed. Lee Dae-yeol, head of the Korea Housing Association, argued, "Because it is largely for the purpose of promoting housing projects, regulations should be eased and it should be excluded from household loans." On the other hand, Choi Eun-young, head of the Korea Center for City and Environment Research, said, "It is a matter for some classes, to the extent that most people would think they wish they could worry about relocation costs," adding, "It is more important to keep the principle of insulating real estate from finance."
There were also opinions to introduce a macroprudential management levy. The idea is that demand could be regulated by imposing a separate levy in addition to interest when large mortgage loans are executed. Suh Young-soo, an executive at SK Securities, said, "It would have an effect of stabilizing housing demand," adding, "However, the entity bearing the cost should be financial institutions, not individuals."
