[Exclusive] Rising 'Loan Barriers' Due to LH Scandal... Even Office-tels and Commercial Spaces Are Restricted

Strengthening Bijudamdae LTV to 40%
Contradiction with Ruling Party's Easing of LTV for Low-Income Groups
Timing Controversy Over 'Post-Election Announcement'

[Asia Economy Reporters Jang Sehee, Kim Dongpyo] The government's decision to significantly tighten the loan-to-value ratio (LTV) for non-residential collateral loans such as land, compared to housing, is interpreted as a measure to prevent speculative demand from flowing in, following the speculative investment scandal involving employees of Korea Land and Housing Corporation (LH). However, concerns have been raised in the market that indiscriminate regulatory tightening could rather shrink market transactions.

The Financial Services Commission, Ministry of Economy and Finance, and other related ministries plan to include a follow-up measure to LH in the household loan management plan around mid-month, which will strengthen the LTV for non-residential collateral loans from the current 70% to 40%. The government intends to apply the loan regulations not only to land but also to commercial buildings and officetels. A government official said on the 2nd, "It seems necessary to comprehensively manage loans for land, commercial buildings, officetels, and other non-housing properties," adding, "Lowering the LTV for non-residential collateral loans will also help banks secure soundness to some extent."

◆Regulations on Officetel and Commercial Building Loans= The government's decision to lower the LTV for non-residential collateral loans from the current 70% to 40% applies the highest level of LTV currently applied to housing collateral loans. Since the current administration took office, an LTV of 40% has been applied to housing priced under 900 million KRW in speculative areas or speculative overheating zones.

However, as the term "non-residential collateral loans" indicates, the scope includes not only land, which triggered the LH scandal, but also non-residential sectors such as officetels and commercial buildings, which is expected to provoke backlash in the real estate market. While the government cites blocking land speculation as the rationale, the market fears that indiscriminate regulations could inadvertently suppress normal market transactions. In particular, officetels serve as a residential alternative for the 20s and 30s generation, who have a low chance of winning housing subscription lotteries and lack funds, choosing officetels over expensive apartments, so unintended harm is anticipated.

With apartment prices soaring uncontrollably and government regulations focusing on the housing market, young people such as newlyweds have recently turned their attention to officetels, which have been relatively less regulated. In speculative overheating zones like Seoul, housing collateral loans for apartment purchases are limited to 40% of the house price, but for residential officetel purchases, loans of up to 70% were possible.

Researcher Cho Hyuntaek from the Commercial Building Information Research Institute explained, "Officetels were popular among young people because they do not require subscription points and are less regulated." With loan regulations now applied to officetels as well, the housing options for financially constrained people in their 20s and 30s have significantly decreased. A person planning to marry this year said, "Since housing collateral loans are blocked, I was planning to secure a residential officetel, but if that is also blocked, are cashless young adults supposed to live only in rental housing?"

Markets such as "Kkoma buildings" (small-scale income-generating real estate affordable for individual investors), which were alternative investment destinations, are also inevitably affected. The number of Kkoma building transactions in Seoul increased from about 19,000 in 2018 to 20,000 in 2019 and 26,000 in 2020, showing an upward trend. Generally, individuals can borrow up to 60% and corporations up to 80% when purchasing Kkoma buildings, but with tightened loan regulations, buying demand is expected to drop sharply.

◆Timing of Announcement Also Under Scrutiny Amid Election Concerns= The government's plan to strengthen regulations contrasts sharply with the ruling Democratic Party's consideration of easing LTV and debt-to-income ratio (DTI) regulations targeting low-income and genuine demand groups. This could potentially lead to conflicts between the government and ruling party on real estate policies, causing market confusion. A government official said, "While strengthening regulations on non-residential collateral loans, if loan easing is selectively applied to certain groups, it could cause market confusion," adding, "When loosening policies, we must consider whether they will actually be effective."

There are also criticisms that the Democratic Party scheduled the announcement after the elections to avoid public backlash from loan regulations. A government official stated, "After coordination with the party, the announcement is planned after the Seoul and Busan mayoral by-elections."