[Exclusive] Complete Ban on Land Speculation... LTV Across All Financial Sectors Strengthened from 70% to 40%

Selection of 'New Adjustment Target Areas' Based on Land
Reflected in Bank Supervision Regulations Notice... Also Managing Bank Soundness

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] As part of measures to prevent land speculation, the government has decided to limit the loan-to-value ratio (LTV) for non-residential mortgage loans in the financial sector to 40%. Previously, the government announced plans to introduce LTV regulations on land to prevent a second Korean Land and Housing Corporation (LH) scandal, and now the specific details have been revealed. Since it will become more difficult to obtain loans to purchase land, attention is also focused on the impact this will have on the real estate market.

According to the Ministry of Economy and Finance and the Financial Services Commission on the 2nd, the government plans to include the LH recurrence prevention measure, which limits the LTV for non-residential loans targeting households across all financial sectors to 40%, in the "Household Debt Management Plan" to be announced in mid-month. A government official stated, "We plan to lower the LTV of non-residential mortgage loans across all financial sectors, including first-tier banks and mutual finance institutions, to 40%. Whether this will apply only to newly designated regulated areas or also to previously designated regulated areas based on housing is currently under discussion."

The loan restriction regulation will be enforced to ensure compliance. Currently, the LTV is applied at 60-70% according to the internal rules of financial companies, but going forward, it will be reflected in the "Banking Supervision Regulations" to ensure strict management and supervision. For example, if purchasing land valued at 100 million KRW, currently a loan of up to 70 million KRW could be obtained depending on the financial company's judgment, but in the future, the limit will be restricted to 40 million KRW according to the regulation. Non-residential mortgage loan targets include land, commercial buildings, officetels, agricultural machinery, and fishing vessels.

If the regulation is applied to areas previously classified as regulated areas, the number of regulated areas is expected to reach around 100.

Regarding this, Eun Sungsoo, Chairman of the Financial Services Commission, recently stated, "Non-residential mortgage loans have been managed internally by banks and non-bank sectors through internal rules or guidelines. Going forward, we need to view this differently."

Meanwhile, the government previously raised taxes to curb speculative land transactions. The capital gains tax rate on land held for less than one year will increase from 50% to 70%, and for land held less than two years, from 40% to 60%. The additional tax rate on non-business-use land transfers will rise from the current 10 percentage points to 20 percentage points.