"300 People Rush to NongHyup as They Take the Last Loan Opportunity"

NH Nonghyup Bank Incheon Songdo Branch Apartment Balance Loan Applicants
Lines Formed 2 Hours Before Opening, Inquiries About Living Expense Loans Flood In
"Severe Cooling of Purchase Sentiment in the Seoul Metropolitan Area, Possibility of Rent and Jeonse Price Increase"

[Asia Economy Reporter Jo Gang-wook] Around 4:30 PM on the 18th at the NH Nonghyup Bank Incheon Songdo City Branch. Although it had been about 30 minutes since business hours ended, dozens of customers remained at the branch conducting loan consultations. This was because Yeonsu-gu was included in the government's 'Housing Market Stabilization Management Plan' (June 17 Real Estate Measures) announced the day before, and they were trying to catch the 'last train' for loans. On that day, a long line of customers inquiring about loans had formed more than two hours before the branch opened, and about 300 apartment buyers awaiting completion in the second half of the year crowded in, creating a bustle with applications for balance payment loans.

Due to the June 17 Real Estate Measures, the loan-to-value ratio (LTV) for mortgage loans in areas newly designated as speculative overheated districts was lowered from 70% to 40% starting on the 19th. For example, if the housing price is 500 million KRW, the possible loan amount is significantly reduced from the previous 350 million KRW to 200 million KRW. However, for applications received by the system on the 18th, the previous regulations still applied, leading to a flood of complaints and inquiries from customers rushing in all day with sales contracts and those whose loan paths were blocked at branches within the affected areas.

The situation was similar at other banks. A representative from Bank A's Songdo branch said, "Dozens of customers who had signed real estate contracts earlier but planned to get loans later flocked in throughout the day," adding, "If they do not apply for loans by the 18th, the LTV will be drastically reduced, so they hurriedly inquired and proceeded with loan applications."

Inquiries also did not cease from those who wanted to increase existing loans or take out loans for living expenses. A representative from Bank B's Anyang branch explained, "There was a flood of inquiries from customers who had taken out mortgage loans for living expenses asking whether the new regulations applied to them," and added, "The main trend was applications from real buyers urgently needing funds, aiming to maximize loans before the new regulations took effect."

Jeonse loan applicants expressed frustration, saying they were hit by a 'bolt from the blue' overnight. Mr. C, who visited the bank for loan consultation that day, complained, "Although this measure is to prevent gap investments, it also blocks non-homeowners from buying their own homes." It was pointed out that the government overlooked the fact that jeonse loans are credit products aimed at ordinary citizens. The government plans to recognize some exceptions to avoid hindering normal transitions from jeonse to homeownership.

Some raised concerns that this measure could cause a balloon effect, further accelerating the recent rise in jeonse prices. This is because, amid the prolonged COVID-19 pandemic and expanding economic recession, the already weakened demand for home purchases is likely to shift more toward rentals.

According to KB Financial Group's Management Research Institute, the jeonse market, which has been stable for over four years, has recently shown price increases centered on some areas in the metropolitan area and five major metropolitan cities. As of April this year, the average apartment jeonse price in the metropolitan area was 310 million KRW, and in Seoul, it was 480 million KRW, rising by 30 to 40 million KRW compared to two years ago. The apartment jeonse price in Jung-gu, Daegu, was 250 million KRW (based on 84㎡), up 38 million KRW from two years ago, and in Seo-gu, Daejeon, it rose about 25 million KRW to 210 million KRW (based on 84㎡). The increase in taxes such as property tax also raises the likelihood that landlords will switch to monthly rent or raise jeonse deposits, deepening the worries of non-homeowners.

Son Eun-kyung, a research fellow at KB Financial Management Research Institute, said, "Due to the prolonged COVID-19 pandemic and the government's strong regulatory measures, overall buying sentiment has significantly weakened, especially in major areas of Seoul and the metropolitan area, and demand staying in the monthly and jeonse rental market is increasing sharply," adding, "If the housing market contraction continues, there is a possibility of localized jeonse price increases as demand for jeonse conversion rises."