[2·20 Real Estate Measures] Government Moves to Block Balloon Effect... Loan Regulations Also Applied to Anyang Manan and Uiwang City

Grouped as Adjustment Target Areas Along with Suwon Yeongtong, Gwonseon, and Jangan Districts

[Asia Economy Reporter Yoo In-ho] From the 21st, three districts in Suwon?Yeongtong, Gwonseon, and Jangan?along with Manan District in Anyang and Uiwang City will be designated as adjusted target areas. Along with this, the loan-to-value ratio (LTV) for mortgage loans within these adjusted target areas will be reduced from 60% to 50%, and particularly for amounts exceeding 900 million KRW, the loan limit will be cut to 30%.

The Ministry of Strategy and Finance, Ministry of Land, Infrastructure and Transport, and Financial Services Commission announced on the 20th a plan titled "Strengthening the Stable Management Policy of the Housing Market through Blocking Speculative Demand." This regulation targets these areas to curb the balloon effect of rising housing prices centered in the southern metropolitan area following the December 16 real estate measures last year.

This measure is the 19th policy under the current government. The government conducted a review and resolution through the Residential Policy Deliberation Committee on the same day to block speculative demand inflow into these five areas and protect genuine buyers. The measures take effect from the 21st.

Kim Heung-jin, Director of Housing Policy at the Ministry of Land, Infrastructure and Transport, stated, “Expectations for further price increases due to development benefits such as the establishment of metropolitan transportation networks are spreading throughout the market in these areas, raising concerns about an expansion of speculative demand for short-term profits.” He added, “We will also conduct thorough investigations in non-regulated areas, and if there are concerns that housing price increases will expand or spread, additional areas will be designated as regulated.”

The government newly designated adjusted target areas because, after the December 16 measures last year (from the fourth week of December 2019 to the second week of February), the cumulative apartment price increase rates in non-regulated areas such as Suwon Yeongtong, Gwonseon, Jangan, Anyang Manan, and Uiwang exceeded 1.5 times the cumulative increase rate of the metropolitan area (1.12%), indicating ongoing market instability. Specifically, Yeongtong rose by 8.34%, Gwonseon by 7.68%, Jangan by 3.44%, Manan by 2.43%, and Uiwang by 1.93%.

Adjusted target areas are designated by selecting regions where the housing price increase rate over the past three months, retroactively from the previous month, exceeds 1.3 times the consumer price increase rate of the city or province, and where subscription rates are high or there is a large volume of pre-sale right transactions.

Measures such as designating new speculative overheating districts or speculative districts, or strengthening regulations on existing adjusted target areas, were excluded from this policy. This has been interpreted as a somewhat softened measure in consideration of the upcoming April general elections. It is also said to reflect the ruling party’s reluctance to strengthen regulations before the elections.

The government also strengthened loan regulations in the adjusted target areas, raising them to the level of speculative overheating districts. Currently, in adjusted target areas, the loan-to-value ratio (LTV) is limited to 60%, and the debt-to-income ratio (DTI) is set at 50%. Responding to criticisms that these regulations are too lax, the government tightened the LTV to 50%. For amounts up to 900 million KRW, an LTV of 50% applies, and for amounts exceeding 900 million KRW, an LTV of 30% applies.

For example, when purchasing a house valued at 1 billion KRW in an adjusted target area, the mortgage loan limit will be lowered from the current 600 million KRW (1 billion KRW x 60%) to 480 million KRW (900 million KRW x 50% + 100 million KRW x 30%). The DTI remains at the current 50%.

Management of business loans for housing purchase purposes has also been strengthened. The prohibition on mortgage loans for housing purchase purposes to businesses engaged in industries other than housing rental or housing sales within speculative districts and speculative overheating districts has been extended to include adjusted target areas.

The real demand conditions for mortgage loans for single-home households in adjusted target areas have also been tightened. Previously, single-home households in adjusted target areas could obtain mortgage loans on the condition of disposing of their existing home within two years, but from now on, the condition will change to mandatory disposal of the existing home and moving into the new home within two years.

Meanwhile, the government will conduct tax investigations without exception if there are suspicions of tax evasion after a full analysis of high-priced transactions by multi-homeowners and others in areas where recent housing transaction overheating has occurred.

The “Real Estate Market Illegal Activities Response Team,” composed of the Ministry of Land, Infrastructure and Transport, National Tax Service, Financial Services Commission, and Financial Supervisory Service, along with the Korea Appraisal Board’s “Permanent Real Transaction Investigation Team,” will focus on inspecting abnormal transactions and illegal activities in major overheated areas.

Starting in March, submission of a funding plan will be mandatory for housing transactions over 300 million KRW in adjusted target areas, and the Ministry of Land, Infrastructure and Transport will immediately begin investigations into abnormal transactions as soon as funding plans are submitted for the relevant areas.

Additionally, through joint on-site inspections by local governments and investigative activities by special investigators from the Ministry of Land, Infrastructure and Transport and local governments, investigations will commence immediately upon discovery of illegal real estate activities such as price collusion or illegal resale in the relevant areas.