Sejong City Lifts Loan Limit on 'Bogeumjari Loan'...Contrary to Real Estate Stabilization Measures

Housing Finance Corporation Narrows Regulatory Areas to 'Within the Seoul Metropolitan Area'... Sejong City Outside the Metropolitan Area Benefits
"Sejong City Leads in House Price Increase Rate, Exclusion Is Not Desirable" Criticism Raised

[Asia Economy Reporter Kwangho Lee] Sejong Special Self-Governing City will be exempted from the restrictions on the low-interest mortgage loan for low-income households called 'Bogeumjari Loan.' Currently, Sejong City is subject to loan limits as it is designated a real estate speculation area, but as the Korea Housing Finance Corporation narrows the regulated areas to speculative areas and speculative overheating districts within the Seoul Gangnam 3 districts and the metropolitan area, Sejong City, located outside the metropolitan area, benefits from the regulatory relaxation.

Sejong City recorded the highest house price increase rate (42%) and the highest official price increase rate last year. If the number of borrowers receiving low-interest loans increases due to the regulatory relaxation, the number of beneficiaries enjoying capital gains will also increase. There are criticisms that this goes against the government's policy to stabilize real estate prices.

According to the financial sector on the 10th, the Korea Housing Finance Corporation recently approved the 'Bogeumjari Loan Business Processing Standard Amendment' containing such details.

The Bogeumjari Loan is a policy product that provides mortgage loans up to 70% of the house price at an annual minimum interest rate of 2.60% (as of June) to those with an annual income of 70 million KRW or less (85 million KRW or less for newlyweds). There is no restriction on the house, but when purchasing a house priced at 600 million KRW or less (500 million KRW or less for actual demanders), the maximum loan amount is 300 million KRW (400 million KRW for households with three minor children).

When setting the loan limit for the Bogeumjari Loan, the Korea Housing Finance Corporation usually bases it on the sale price. However, in speculative areas (16 locations) and speculative overheating districts (49 locations), the limit is calculated based on the appraised value, which is higher than the sale price. The approved amendment revised the regulated areas for calculating the limit based on the appraised value from the current 'speculative areas and excluding metropolitan speculative overheating districts' to 'metropolitan speculative areas and excluding metropolitan speculative overheating districts.' Accordingly, Sejong City, the only speculative area outside the metropolitan area, has become a beneficiary.

By pricing the house based on the sale price instead of the appraised value, residents who purchase new apartments in Sejong City in the future are expected to be able to finance more cheaply. The possibility of capital gains is also high. This is because there are forecasts that house prices may rise further as the supply for the general public is expected to increase following the policy to abolish special supply for public officials in Sejong City.

Professor Tae-yoon Sung of Yonsei University’s Department of Economics pointed out, "In fact, the price increase rate is not different from that of the metropolitan area and may even be higher, so excluding it is not desirable," adding, "It also goes against the government's loan regulation and tax relief policies."

A Korea Housing Finance Corporation official explained, "There was a complaint that Sejong City, like non-metropolitan areas, should set the loan limit based on the sale price, and it was decided to reflect this through internal consultation." He added, "There will be no speculation concerns as some fear," emphasizing, "The Bogeumjari Loan is not available for houses priced over 900 million KRW, and if the borrower does not move in within three months or does not meet the actual residence condition, the loan is canceled."