'Largest in 7 Years' Jeonse Prices Soar... Low-Income Citizens Frustrated by Government Loan Regulations

[Asia Economy Reporter Jo Gang-wook] Last month, while jeonse prices recorded their largest increase in over seven years and soared to unprecedented heights, jeonse loans showed signs of slowing down. This is due to banks, constrained by the government's strengthened household loan regulations, stepping up their management efforts. Despite various government measures, instead of stabilizing housing prices, the jeonse crisis has worsened, raising concerns that it will become even more difficult for actual homebuyers in need of funds to obtain loans.

According to the financial sector on the 5th, as jeonse prices continue to rise, the outstanding balance of jeonse loans at the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?has increased by nearly 23 trillion won over the past 11 months.

In February alone, the monthly increase in jeonse loans reached a record high of 2.7034 trillion won, and for seven out of the past 11 months, the monthly increase exceeded 2 trillion won. The sharp rise in jeonse loans is interpreted as a result of the rapid surge in jeonse prices.

However, in November, after four months of rapid growth, jeonse loans increased by only 1.6564 trillion won, showing a 'sluggish' trend compared to the previous month.

Nevertheless, due to the ongoing shortage of jeonse listings and the resulting jeonse crisis, nationwide housing jeonse prices last month rose the most in 7 years and 1 month. According to the Korea Real Estate Board's November "National Housing Price Trend Survey," the comprehensive nationwide housing jeonse price rose by 0.66% last month, up from 0.47% the previous month. This is the largest increase since October 2013 (0.68%). Nationwide housing jeonse prices have been rising for 14 consecutive months.

The somewhat slowed increase in jeonse loans amid last month's record-breaking jeonse price surge is analyzed to be due to some banks managing total household loans by, for example, suspending jeonse loan issuance in certain cases until the end of the year.

Woori Bank has imposed "conditional restrictions" on its jeonse loan products from the end of October to the end of December. Previously, Woori Bank's jeonse loan balance surged by more than 2.7 trillion won in just two months, September and October, because its jeonse loan interest rates were maintained lower than those of other banks.

Meanwhile, Nonghyup Bank, which has the highest jeonse loan interest rates among the five major banks, saw its jeonse loan balance decrease for two consecutive months in October and November compared to the previous month.

As the government tightened bank loans to curb real estate prices, speculative demand to secure loans in advance increased, leading banks to raise interest rates despite the ultra-low interest rate environment to manage total loan volumes.

In fact, Shinhan Bank's variable-rate (based on COFIX for new loans) jeonse loan interest rate rose from 2.42% on the 20th of last month to 2.5% on the 3rd of this month, an increase of 0.08 percentage points in just 10 business days. Hana Bank's jeonse loan interest rate also increased by 0.083 percentage points during the same period. This rise in loan interest rates is highly unusual given that the Bank of Korea's base rate has remained at a historic low of 0.50% for seven months.

Although jeonse prices are skyrocketing, the government's tightening of loan regulations has drawn criticism from the homeless population as "kicking away the ladder." As commercial banks manage total loan volumes, loan limits are reduced, potentially harming actual homebuyers who urgently need jeonse funds.

Financial authorities, seeing that loan growth has not slowed despite successive loan regulations, are conducting household loan inspections to manage the total volume and risks of bank loans.

Meanwhile, the outlook for the first half of next year also predicts rising housing and jeonse prices. According to a recent survey by Real Estate 114 on the "Housing Market Outlook for the First Half of 2021," 69% of respondents expect housing sale prices to rise in the first half of next year, and 77% expect jeonse prices to increase.

A banking industry official said, "The jeonse crisis, marked by soaring jeonse prices and shortage of supply, is expected to continue for the time being," adding, "Demand for jeonse loans is also unlikely to subside, but financial authorities are conducting household loan inspections, so management is inevitable."