"Increase in Commercial Vacancy Rates Over the Past 3 Years"
[Asia Economy Reporter Kim Hyo-jin] Financial authorities have hinted at the possibility of strengthening regulations on non-residential mortgage loans such as commercial properties, drawing increased attention from the market.
Although no significant issues have arisen yet, the financial authorities' position is that regulations may be considered in response to trends such as the rising vacancy rates in commercial properties.
According to financial authorities on the 1st, from September last year to July this year, among non-residential mortgage loans newly issued over the 10-month period, new loans with a Debt Service Ratio (DSR) exceeding 100% amounted to approximately 3.2 trillion KRW. This accounts for 35% of the roughly 9 trillion KRW in newly issued non-residential mortgage loans during that period.
DSR is an indicator representing the borrower's repayment burden relative to their repayment capacity, calculated by dividing the annual principal and interest repayment amount of all loans held by the borrower by their annual income.
Financial authorities manage loans by setting average DSR targets for each bank. While a DSR regulation of 40% applies when borrowing against housing priced over 900 million KRW in speculative or overheated speculation zones, there are no separate regulations for non-residential mortgage loans.
Concerns have been raised that the burden on financial markets could increase if the self-employed market conditions worsen due to the impact of COVID-19 and the profitability of commercial properties declines, coupled with rising vacancy rates.
In this regard, the Financial Services Commission stated at the Financial Risk Response Team meeting on the 28th of last month, "(Non-residential mortgage loans) have a higher average DSR compared to residential mortgage loans, and commercial property vacancies have increased over the past three years," adding, "We plan to consult with related agencies to take necessary measures if signs of instability are detected in the future."
However, financial authorities maintain that the first inspection of the banking sector shows a slowing growth rate in non-residential mortgage loans and a high proportion of high-income, high-credit borrowers, so no unusual trends have been observed so far.
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